Water is one of the world’s most critical yet undervalued resources. As climate change, population growth, and ageing infrastructure place increasing pressure on water systems globally, sustainable water management is both an environmental necessity and an economic opportunity.
This World Water Day, five leading investment professionals outline their approaches to engaging on water issues or opportunities to invest in solutions providers.
Tongai Kunorubwe, head of ESG, fixed income at T. Rowe Price
Water, often taken for granted, is far more precious than we think. The global economy and ecology depend on thriving oceans and clean water resources, yet the blue economy faces ever-increasing challenges.
A critical component of the blue economy is the availability of freshwater for people, industry, and agriculture. While 75% of our planet is covered by water, only 3% is freshwater, and merely 1% is suitable for human and industrial consumption. Due to population growth, increased economic activity, and climate change, freshwater is becoming increasingly scarce.
Water scarcity will be one of the top challenges for humanity in the next decade and a major risk to global GDP growth. Climate change exacerbates water scarcity by altering precipitation patterns, increasing the frequency and severity of droughts, and causing the melting of glaciers. These changes threaten water availability, food production, and energy generation, creating a vicious cycle that further accelerates climate change.
Investors can make an invaluable difference by investing in freshwater and sanitation projects to keep oceans healthy. The blue economy offers investors ample potential for financial returns while fulfilling commitments to environmental stewardship and social responsibility. Every £1 invested in water generates a £4 economic return by improving health, increasing productivity, and creating opportunities for education, employment, and livelihoods.
Eric Pedersen, head of responsible investments at Nordea Asset Management
Water is a critical but often overlooked investment risk factor.
An estimated two-thirds of the world’s population already face water stress, with increasing economic activity and climate change set to put even further pressure on global resources.
Beyond scarcity, pollution and water degradation also pose financial, legal, and reputational risks for companies.
As investors, we use multiple tools to assess water-related risks across our portfolios, identifying companies with high exposure due to consumption, pollution, or geographic factors. We tailor our engagement approach to ensure a company addresses the water risks relevant to its business model.
Additionally, sector-specific challenges often require targeted action. For example, we have an acute focus on PFAS pollution in the chemicals industry, water licensing and desalination in mining, and reduced industrial discharge within pharmaceuticals. Alongside individual company engagement, we collaborate through initiatives like the Investor Initiative on Hazardous Chemicals and the Pharmaceutical Supply Chain Initiative to help accelerate systemic change.
As water risk intensifies, the companies that fail to manage it effectively jeopardise their long-term viability.
Saurabh Sharma, fund manager of the Regnan Sustainable Water and Waste fund
Water security is a complex issue influenced by various climatic and non-climatic factors. Therefore, enhancing and developing our water infrastructure throughout the entire value chain is crucial.
This encompasses watershed management, leak detection, rainwater harvesting, water-efficient products, disaster planning, and sustainable urban drainage.
The Regnan Sustainable Water and Waste Strategy provides investors with an opportunity to engage with the global water value chain.
One example from the portfolio is Advanced Drainage Systems (ADS), a US-based company that offers products and solutions for the stormwater and onsite septic wastewater markets. The company’s pipes effectively redirect water away from parking lots, freeways, and fields, ensuring that these areas remain dry and safe for communities. Additionally, ADS provides water quality products designed to clean water before it is returned to lakes and streams, supporting environmental sustainability and water conservation.
We believe ADS is well-positioned due to its strong underlying growth drivers, a competitive advantage, and a solid operational and financial performance record. In the short term, demand for its products may be influenced by spending levels and project activity in key markets, such as homebuilding, non-residential construction, and infrastructure/highway projects.
After two consecutive years of underperforming, we expect the company to thrive in the coming years as volumes recover and the company preserves pricing while improving margins.
Amelia Campbell, analyst at Maple-Brown Abbott Global Infrastructure
As investors in global infrastructure (equities), we see particularly attractive investment opportunities in listed water utilities in the UK.
The UK water sector has seen heightened public scrutiny over recent years around pollution of rivers and seas, and the regulation and management of private companies. However, the recently completed regulatory review is a positive development that has set the stage for a step change in the sector, with a quadrupling of new investment and an improved regulatory framework to help transform performance.
The water sector is focused on replacing ageing pipes and water treatment plants, reducing pollution, adapting to climate change and ensuring supplies for future generations. This environmentally-focused investment programme drives long-term growth for companies, with our largest water investment, Severn Trent (SVT), expecting to grow its regulatory assets by around 10% per annum to 2030.
We believe this backdrop will underpin better operational performance, predictable earnings growth and value creation, supported by a regulatory framework that protects investors from inflation and some downside risks. We see Severn Trent and United Utilities as especially well-positioned to benefit given their track records and strong balance sheets. We are excited about the investment case today as the share price performance of these stocks has recently lagged despite this improved outlook.
Hywel Franklin, portfolio manager of the Mirabaud Discovery Europe fund
Europe’s creaking infrastructure sees a quarter of drinking water wasted before it reaches your tap – literally money down the drain – and the cost of fixing it is now estimated at over €250bn.
Some areas, such as Argolida in Greece, lose almost half their drinking water, while contamination makes tap water undrinkable in summer. Climate change and population growth are exacerbating risks worldwide, so it is unsurprising that the pressure for improvements to water infrastructure is building.
There are various innovative companies in Europe providing solutions on (and under) the ground. Demand for pipeline maintenance, monitoring and smart leak detection is increasing, while stricter environmental regulations are boosting companies specialising in water treatment and filtration technology.
See also: M&G’s Praveg Patil: Bridging the water gap
Smart metering technology providers and data analytics firms are benefiting from utilities firms pushing for greater efficiency, while modernisation in the agricultural sector (which uses the majority of water) is driving demand in areas like precision irrigation.
One stock that we believe stands to benefit is Norma, a German company offering drip irrigation systems and storm water management solutions in Europe and internationally. Drip irrigation can improve water efficiency in agriculture by 60% compared to traditional methods, whereas storm water management helps protect lives and property.
