As World Water Day on 22 March shines a light on the link between gender and water, Justin Winter, portfolio manager on Impax Asset Management’s Water Strategy, said the issue is most pronounced in developing economies, where women and girls are often disproportionately affected by poor access to clean water and sanitation.
“It is women who are the people who have to go and walk for miles to go and get safe drinking water,” he said. They are also “touched by a whole range of issues around access to sanitation”.
Winter added this impact also stretches well beyond day-to-day inconvenience and into safety, education and opportunity.
“If girls are going for miles to fetch water and to bring it back, that means they’re not studying,” he explained. Further, sanitation can present additional risks for women and girls in areas without proper facilities. “If you’re living in a place where you don’t have a toilet, and you have to go somewhere that is a bit more remote, all sorts of safety issues come up around that.”
The Impax Water Strategy, which Winter runs with Harry Boyle, has €6bn in assets under management, with part of this run for BNP Paribas Asset Management. Winter said it is “the second biggest water specific strategy in the world”.
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Tech background
While gender inclusivity is an important consideration, the main themes on the fund centre around water efficiency and technology, ageing infrastructure and network upgrades, and the digitalisation of water systems.
Before becoming portfolio manager on the strategy in 2019, Winter had a career background in civil engineering focused on water and the environment, and worked in consulting on “flood modelling and hydrology studies and environmental impact studies”.
That technical grounding matters. “The thing about water is that it’s used everywhere in the economy,” Winter said. “Think about drinking water and sanitation and agriculture, but it’s used to make all the stuff that we see around us. It’s used to make the semiconductors that we’re using to have this conversation, used to cool data centres, is used to make textiles… almost everything.”
That breadth gives the strategy exposure to a wide range of businesses, although Winter said the true investable universe remains relatively small. There are “fewer than 300 globally” that meet the fund’s threshold of having more than 20% exposure to water-related activities.
Within that universe, the portfolio is built across several buckets: water efficiency and technology, ageing infrastructure and network upgrades in water utilities, and the digitalisation of water networks.
It is the efficiency side of the market that has thrown up some particularly interesting investment opportunities in recent years, Winter said, with the team seeking companies with solutions linked to high-growth areas such as semiconductors and data centres.
“We went looking for companies with exposure, or companies who were providing solutions around semiconductor manufacturing in particular,” he said.
One unnamed holding helps “to reduce the water intensity of semiconductor manufacturing”, while another is involved in thermal management for data centres, “helping to reduce the water intensity of cooling data centres”.
Those businesses have also benefitted from another structural trend. They are “participating in the AI sort of capex booms” and “they’ll be doing very well”, Winter added.
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Underinvestment
More broadly, he sees climate change as intensifying both sides of the water challenge: scarcity and flooding.
“People often think about water scarcity, and it is definitely true we are seeing more intense and more prolonged droughts,” Winter said. The flip side is that “warmer air holds more water, so it means you get more intense rainfall events”.
That creates opportunities in firms helping societies cope with ageing and inadequate infrastructure, whether in drinking water, wastewater or stormwater systems. Winter said underinvestment has been a long-running problem in many developed markets and is now becoming harder to ignore, with the consequences showing up in higher water losses, overflows and network failures.
A key part of the solution is better monitoring and data.
“In terms of managing the network, we need more meters and sensors,” he said, so that operators can gather more data and manage systems more effectively.
He also pointed to the shift from manual meter readings to more sophisticated connected technology. “With having more data and being better able to model, you can say, ‘Well, hang on a second, all of these places seem to be using more water, or there are issues in this thing. What’s going on there?’”
“What often happens before [a burst] is that there’s water leaking out more slowly,” he added. “If you could pick that up before it actually burst, then obviously you save a lot of people having to have bottled water for a few days.”
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The same principle applies to wastewater and storm systems. With more sensors across a combined network, utilities can better prepare for intense rainfall, increase pumping where needed and reduce the risk of flooding and sewer overflows, he said.
Turning to utilities, Winter said they provide the most defensive earnings profile within the water universe.
“When Covid hits, and there’s a lot of uncertainty about what’s going to happen in terms of companies’ earnings, you look at it and go, ‘There are still people around’,” he said. “Whether we’re working at home, or whether we’re working in the office, water’s being used.”
That resilience is why Impax holds utilities even if they are unlikely to deliver the fastest growth in stronger markets. “We don’t own utilities usually because we think that they’re going to be doing 25% a year,” Winter said. “We own them because we know that the earnings are stable, and if there’s an economic shock, like a war or a pandemic, then there’s resilience in those earnings.”
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