WATER – ADAPTING TO THE IMPACT OF CLIMATE CHANGE WILL BOTH PROTECT AND SAVE LIVES
In celebration of World Water Day 2020¹ Natural Resources specialist KBI Global Investors highlights
7 Water Investing Trends for the decade ahead and streams new video on the outlook for Water
Whether it’s the floods along the Severn and in East Yorkshire, the Australian wildfires or drought in Central Europe before that – we are witnessing at first hand the repercussions that too much or too little water has on the environment, on communities and on the economy, our lives increasingly impacted by climate change. Spurred by worldwide demonstrations, and demanding attention at the World Economic Forum’s most recent gathering in Davos, the climate crisis has secured its place amongst the top five risks associated with global economic growth into the future and continues to dominate the headlines.
Investors are increasingly shying away from carbon footprint heavy industries such as oil, gas and mining – agitating for companies to reduce their exposure to fossil fuels – and seeking alternative opportunities in the field of renewable energy such as wind and solar. But water also has an important role to play in addressing climate change, water companies working with communities, farmers, utilities and industry to adapt to and mitigate against climate risks. They offer solutions to increase the resiliency of water infrastructure, improve the reliability of services to the community, reduce water and energy consumption, increase crop yields and support disaster relief efforts – all of which contribute significantly in sustaining economic growth and public health.
With International World Water Day upon us – it was first designated by the UN General Assembly on 22nd March 1993 and is held on the same day each year – and the inextricable links between water and climate the focus of this year’s event, specialist asset manager KBI Global Investors (‘KBIGI’), which has been investing in the water industry since 2000, observes seven big water investing trends as the multi-decade investment opportunity enters its third decade. Whilst many are already underway, the Dublin-based manager believes many will advance “from trickle to torrent.”
7 Water Investing Trends for the 20s
- Climate Crisis crescendo – Water companies will work alongside core stakeholders to provide alternate water supply sources and address stormwater management strategies, this to increase resilience in the face of rising seas, more droughts, more floods and more extreme weather events
- Smart Water matures – Water companies are actively electrifying and networking their analytics on plumbing, hydrants, pumps, meters, boilers, water treatment technologies and irrigation equipment. Remote monitoring and controls help with predictive maintenance, lowering input costs, improving outcomes and pre-emptive alerting. This is a “win-win” according to KBIGI’s Catherine Cahill, Co-Manager on the long established KBI Water Strategy….. better business for the water companies and more efficient operations for customers, which, among other benefits, helps address increasing water affordability concerns
- Battle for the Water consumer – Consumerism is about to enter the Water space and this will drive two main responses: water utilities will need to develop rapid responses and closer relationships to their customer base at the same time as residential water treatment business models ramp up their efforts to bring water treatment solutions into the home
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- Infrastructure boom – You can see it in the management commentaries, organic growth and backlogs of the global consulting engineers – an infrastructure boom is underway; however, the phasing of spend means projects can take a long time from conception to completion, and that means the spending will transition from the smaller engineering phase to the larger construction works and technology implementation phase well into the 2020s
- Reverse a decade of industrial rationalisation – After a decade of restructuring, few industries are sitting on excess capacity. In addition, changing trade patterns have driven a desire for a more diverse qualified supplier base and shorter supply chains. This has the potential to lead to a more normal pace of industrial capacity growth going forward, which will drive demand for industrial water solutions
- Resumption of the roll-ups – Unlike the ‘consolidator phase’ of the 2000s, in which large multi-industry companies dipped their toe into water, it is likely that we are going to see the focused water companies themselves buy up interesting, highly fragmented spaces. We are already starting to see this happen in waterworks distribution, residential water treatment, industrial water treatment and US utilities
- Rise of India/Africa – Just as China rose from a small factor in the water industry to a huge force over the last 10-15 years, KBIGI believes the same will be true for India and Africa over the coming decade. Both geographies have a population of about 1.3 billion apiece and have significant needs to address clean water and proper sanitation issues. Both regions are notoriously difficult to work in due to bureaucracy and corruption, but growth is nevertheless likely to be robust
Water companies enter the new decade with highly differentiated competitive positioning
Water companies enter the 2020s with strong, differentiated competitive positioning; this should serve the industry well as we enter a decade marked by the climate crisis crescendo, with a billion more people living in cities, continued infrastructure degradation and the UN Sustainable Development Goals (‘SDGs’) providing a beacon on spending priorities for governments and corporations alike.
Cahill says water companies play an important role in providing solutions that will contribute to both mitigating and adapting to the climate crisis, providing clean water and addressing resource scarcity. “We are set to see the scene shift away from being reactive to climate change towards instead being more proactive, as the social and financial costs of being vulnerable and prone can exceed the costs of addressing the problems after catastrophe strikes. Policymakers are increasingly supportive at a time when water problems are becoming more challenging. With the underlying targets of the UN SDGs mostly ending in 2030, we are optimistic about the decade ahead for a focused water investing strategy.”
In its latest Water video, uploaded to Vimeo as a backdrop to World Water Day, Senior Portfolio Managers Catherine Cahill and Matt Sheldon present their outlook for Water stocks heading into the 2020s.
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Journalists seeking further information or who would like to speak with KBI Global Investors should contact:
Phoenix Financial PR
+44 7799 767 468
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NOTES TO EDITORS
- About KBI Global Investors (‘KBIGI’)
Established in 1980, KBI Global Investors is a specialist institutional asset management boutique, offering a range of Global Equities and Natural Resources strategies. The firm manages assets for a broad range of clients – public and corporate pension schemes, sub-advisory investors, foundations and endowments, wealth managers, private banks and investment intermediaries included. KBIGI has a global client base and today holds mandates in the UK, Europe, North America and Asia as well as for some of Ireland’s largest and best-known corporations. Part of Amundi, the firm is headquartered in Dublin, with a representative sales office in Boston, Massachusetts.
KBIGI boasts a track record of delivering consistent and outstanding risk-adjusted investment performance over the longer term, its highly experienced investment team today managing €12bn. (This is the combined AUM of KBI Global Investors Ltd and KBI Global Investors (North America) Ltd as at 31st December 2019).
The firm is headed by CEO Sean Hawkshaw, with members of the KBIGI team holding 12.5% of the equity in the firm.
- KBI Global Investors and Natural Resource strategies
One of the firm’s principal goals is to be first to market with value-adding investment themes of the future. In the late 1990s, KBIGI was amongst the earliest investors to recognise the inherent source of alpha (the active return on an investment) from investing in companies providing solutions to sustainability challenges related to the provision of food, energy, water and the mitigation of and adaptation to the impacts of climate change.
Having identified a compelling and clear need for investment in companies providing solutions to the global shortages of clean water and energy, the firm first launched strategies in these areas in 2000. Building up its team and intellectual capital in these themes, KBIGI added a climate change strategy in 2007, a sustainable impact agribusiness (food) strategy in 2008 and a sustainable impact infrastructure strategy in 2017.
From 2018 onwards, KBIGI has been reporting on the extent to which its Natural Resource strategies contribute to the achievement of the United Nations Sustainable Development Goals (‘SDGs’). This significant initiative involves the detailed classification of all revenues of the companies held in each portfolio, determining whether the activity from which those revenues arise is contributing, positively or negatively, to one or more of the SDGs.
KBI Global Investors Ltd is regulated by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority in the UK. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. KBI Global Investors (North America) Ltd is a registered investment adviser with the SEC and regulated by the Central Bank of Ireland. KBI Global Investors (North America) Ltd is a wholly owned subsidiary of KBI Global Investors Ltd. ‘KBI Global Investors’ or ‘KBIGI’ refer to KBI Global Investors Ltd and KBI Global Investors (North America) Ltd.
Under MiFID II this is deemed marketing material and should not be regarded as investment research. This material is provided for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any security, product or service including any group trust or fund managed by KBI Global Investors. The views expressed in this article are expressions of opinion only and should not be construed as investment advice