20 November 2023
With the demands from climate change and demographic changes, the water industry has structural growth drivers that could see investors benefit, according to Caroline Langley, deputy fund manager of the Quilter Cheviot Climate Assets fund range.
The behaviour of water companies in the UK has been called into question for a while, with the likes of Thames Water facing financial difficulties and sewage discharges becoming increasingly common.
However, Langley believes the growth potential of companies offering innovative solutions to the water industry is vast due to the size of the challenge and the investment required to fix the issues.
“Water is becoming increasingly scarce and as a result we need to be more efficient with it,” Langley said. “We need to find those companies that do more with less and put pressure on the laggards to act in a more sustainable manner.
“There are significant growth drivers for the industry, with population growth driving demand, urbanisation altering where reliable pure supplies are most needed, and climate change exacerbating the supply demand imbalance.
“We also have intensive industries that require huge amounts of water. Electrification and the rise of artificial intelligence are increasing demand for semiconductors. This will continue to drive water demand as it is a key component of the manufacturing process. Pretty much every company and industry need water, and some need it in far greater quantities.”
Langley added that this means investment will be crucial and that these are long-term growth drivers. “The opportunity for investors could take-off.”
Speaking at a recent Quilter Cheviot event, environmental campaigner Feargal Sharkey said that there is a huge supply shortage, and this will have serious knock-on effects.
“The regulatory system in the UK is too complex and has failed both the public and the environment,” he said. “Not only are we faced with constant sewage discharges, but supply cannot meet demand and we are now in a situation where London and the Southeast may soon run out of water.
“This isn’t even considering the global situation, where 2.2 billion people don’t have access to clean and reliable water sources. Water supply is an issue right now and requires massive amounts of investment. It is a massive opportunity.”
Langley suggests there are different ways for investors to potentially access the growth drivers behind water.
She said: “Water technology businesses, such as the North American company Xylem, provide innovative solutions throughout the water cycle. Meanwhile, water utility companies that are recognised as sustainability leaders in their sector are also worth consideration, such as American Water Works which has invested significantly in its infrastructure to maximise its water efficiency.
“In addition to established companies, new companies are also emerging such as Veralto which was until recently part of the Danaher Group. We like its focus on improving water quality and its use of IT platforms to analyse data to maximise water efficiencies. It even sells equipment and sensors for weather forecasting. Understanding water’s whereabouts is a growth area for a world with less predictable climate.”
Quilter Cheviot’s Climate Assets fund range invest in water as one of its five investment themes, looking for companies that offer sustainable solutions to the global challenges. This includes those offering smart metering, desalination technology and efficient pumps among others.
