# Analysis: As drought risks rise, investors eye thirsty companies, solutions
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-22
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Investors Pressure Companies Wasting Water Amid Global
Meta Description: As global droughts worsen, investors are pressuring companies to conserve water. Learn how to invest in water equity funds to address the crisis.
URL: https://financedigest.com/analysis-as-drought-risks-rise-investors-eye-thirsty-companies-solutionshtml

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By Cole Horton, Ross Kerber and Simon Jessop

NEW YORK/LONDON (Reuters) – As droughts worsen across the world, investors are turning up the heat on companies wasting water and trying to pick winners from a sparse crowd of specialist listed companies looking to address the problem.

From Kenya to California and nearly half of Europe, a shortage of fresh water has grabbed the attention of policymakers and given millions of citizens a fresh window into the stressed state of the planet.

Against that backdrop, a group of investors managing nearly $10 trillion on August 16 said they planned to step up efforts to pressure [boards to better manage the critical resource and could vote](https://www.financedigest.com/hsbc-board-recommends-shareholders-vote-against-spin-off-resolution.html "HSBC board recommends shareholders vote against spin-off resolution") against directors of laggard firms.

The vested interest in doing so is clear: analysis from environmental disclosure platform CDP and Planet Tracker in May showed listed [companies could face](https://www.financedigest.com/disconnected-customers-are-one-of-the-biggest-problems-facing-financial-companies.html "Disconnected customers are one of the biggest problems facing financial companies") losses of at least $225 billion from risks related to water.

These are no longer far-off events; they are happening right now,” said Dexter Galvin, CDP’s global director of corporations and [supply chains](https://www.financedigest.com/minimising-supply-chain-cyber-risks-by-asking-the-right-questions.html "MINIMISING SUPPLY CHAIN CYBER RISKS BY ASKING THE RIGHT QUESTIONS").

Last week, for example, Toyota suspended production at a [plant in China’s Sichuan province amid a drought-induced power](https://www.financedigest.com/edpr-brings-iberias-first-wind-solar-power-plant-on-stream.html "EDPR brings Iberia’s first wind-solar power plant on-stream") shortage.

[Awareness of how fraught the situation is – with 2.3 billion people currently living](https://www.financedigest.com/pensions-awareness-day-could-you-get-by-on-less-than-living-wage.html "Pensions Awareness Day: Could you get by on less than living wage? ") in water-stressed countries, according to the United Nations – has led a number of asset managers to launch equity funds to tap growing interest among investors to help find a solution.

Global data from Morningstar Direct [shared with Reuters shows 23 water funds launched](https://www.financedigest.com/novartis-launches-new-11-billion-share-buyback.html "Novartis launches new  billion share buyback") over the last five years, with a collective $8 billion in assets at the end of July.

David Grumhaus, Jr., portfolio manager for the $812 [million Virtus Duff & Phelps Water Fund](https://www.financedigest.com/british-ev-startup-arrival-gets-300-million-funding-aims-to-slow-cash-burn.html "British EV startup Arrival gets 0 million funding, aims to slow cash-burn"), said there has been a “spillover effect” as water crises have worsened.

When the top news story is that boats can’t make it through the Rhine River and Germans aren’t going to get all their supplies, it does definitely make [people think](https://www.financedigest.com/over-a-third-of-uk-people-think-thomas-whitmore-from-independence-day-will-be-joined-by-donald-trump-in-disneys-hall-of-presidents.html "Over a third of UK people think Thomas Whitmore from Independence Day will be joined by Donald Trump in Disney’s Hall of Presidents") about water and our fund,” he said.

WATERED DOWN?

Despite their name, water equity funds do not directly own water rights, which are highly localized and regulated, and instead invest in [companies with business](https://www.financedigest.com/keeping-an-eye-on-company-purse-strings-where-do-businesses-go-wrong.html "Keeping an eye on company purse strings – where do businesses go wrong?") exposure to water, according to Morningstar senior manager research analyst Bobby Blue.

Common holdings include utility American Water Works Company Inc, water technologist Xylem Inc, and the Swiss [industrial firm](https://www.financedigest.com/britain-considers-energy-bill-subsidy-for-industrial-firms.html "Britain considers energy bill subsidy for industrial firms") Georg Fischer AG , which works on the safe transportation of water.

The number of listed companies exclusively focused on this commodity, so-called pure plays, is small, [fund managers](https://www.financedigest.com/why-ai-can-be-the-key-to-success-for-fund-managers-in-the-post-covid-landscape.html "Why AI can be the key to success for fund managers in the post-COVID landscape") and analysts said.

Simon Gottelier, co-manager of the $282 million Thematics [Water Fund, estimated that there are around 25 to 30 investable water utilities globally](https://www.financedigest.com/spacex-rocket-sends-first-global-water-survey-mission-into-orbit.html "SpaceX rocket sends first global water survey mission into orbit"), as well as a “handful” of water technology businesses.

“Everyone wants to do something about water, but it’s just difficult to do so through public equities,” said Morningstar’s Blue.

[Managers therefore turn to a larger pool of companies](https://www.financedigest.com/poor-user-experience-plaguing-wealth-management-firms-warns-radical-company.html "Poor user experience plaguing wealth management firms, warns Radical Company") which have water segments alongside other business units. Many of these focus on desalination, smart irrigation, and pollution prevention.

Cedric Lecamp, manager of the $9.2 billion Pictet-Water Strategy, said his [firm has identified 360 companies with a “meaningful exposure](https://www.financedigest.com/over-a-dozen-chinese-based-firms-say-they-have-minimal-exposure-to-svb.html "Over a dozen Chinese-based firms say they have minimal exposure to SVB") to the water theme.

His [fund’s largest position at the end of July](https://www.financedigest.com/in-renewed-push-spain-to-tender-eu-funds-for-evs-batteries-in-july.html "In renewed push, Spain to tender EU funds for EVs, batteries in July") was Danaher Corporation , which owns water quality businesses but derives most of its revenue from the life sciences and diagnostics sectors, according to company filings.

Water fund managers called this diversification beyond pure-play utilities not only necessary, but a [potential asset given the range of companies](https://www.financedigest.com/factbox-companies-potentially-affected-by-italys-election.html "Factbox: Companies potentially affected by Italy’s election") working on water solutions.

There hasn’t been a massive explosion of new [companies who are providing](https://www.financedigest.com/traceto-io-positions-itself-to-be-the-worlds-leading-kyc-provider-to-blockchain-companies.html "Traceto.io positions itself to be the world’s leading KYC provider to blockchain companies") solutions in the water space,” said Justin Winter, co-manager of the $7.3 billion Impax Water Strategy.

“But the outlook for the existing companies basically has never been better.”

Xylem Senior Vice President Albert Cho said it [forecasts revenue](https://www.financedigest.com/endoscopic-mucosal-resection-market-global-leading-companies-analysis-revenue-trends-and-forecasts-2027.html "Endoscopic Mucosal Resection Market Global Leading Companies Analysis, Revenue, Trends and Forecasts 2027") growth around 5% through 2025 as customers look to boost water efficiency. That’s not a high growth rate for a [technology company](https://www.financedigest.com/5-top-tips-on-how-to-grow-a-technology-company.html "5 Top Tips on how to grow a technology company"), but Cho called it significant for the water sector, where buyers often are underfunded local utilities.

Many see digitizing their [infrastructure as a powerful](https://www.financedigest.com/brighter-financial-futures-will-be-powered-by-better-infrastructure.html "Brighter financial futures will be powered by better infrastructure") tool to boost efficiency such as by spotting underground pipe losses. With the right equipment, “you know where your water is and where it’s leaking and can do something about it,” Cho said.

(Reporting by Cole Horton in New York, Simon Jessop in London and Ross Kerber in Boston; editing by Diane Craft)


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