Bank Sarasin's sector sustainability report: Water – investment theme par excellence22.05.2012
Global water demand is growing faster than the world's population. Unlike other materials such as oil or gold, however, water is not a tradable commodity. Water purification and supply, along with wastewater treatment, are therefore much more interesting themes for the sustainable investor. Sustainably managed investments in the water infrastructure – whether over a horizon of five or 50 years – present huge growth opportunities. Bank Sarasin's Sustainable Research team has compiled a universe of companies that make a sustainable contribution to the supply of water and treatment of wastewater. In the last five years the sustainable water universe has easily beaten the global equity market (as measured by the MSCI World Index).
Bank Sarasin's sustainability experts expect the water companies sector to grow by 4-5% per year on average in real terms up to 2020. The largest segment of the water industry in terms of sales is that of "Utilities", which are predominantly owned by the public sector, however. Consequently the spotlight falls mainly on suppliers, since the utilities invest almost half their revenues in components (pumps, pipes, etc.) and construction works. Companies offering products that save water, or manage water more efficiently in their production processes, will also benefit in view of water scarcity.
Focus on renewal and expansion
Since investment in the renovation of the water infrastructure has been neglected for decades, there is now a growing need to renovate networks in the more advanced economies. It is vital to prevent the amount of water lost through leaks from rising still further. In emerging economies and newly industrialised nations, the main challenge is the expansion of the water infrastructure. The emphasis here is on ensuring effective wastewater treatment, since the pollution of water courses has reached a dangerous level and is increasingly threatening the provision of fresh drinking water.
Ordering copies of the sector report on the theme of water
Copies of the sector report "Water — elixir of life and investment theme" (authors: Matthias Fawer, Klaus Kaempf and Matthias Priebs) are available in English and German on payment of a copyright fee of CHF 25 or EUR 20 (free to clients and the media) from firstname.lastname@example.org.
Demand being driven by newly industrialised countries
As living standards rise in the newly industrialised countries, so eating habits are shifting in favour of greater meat consumption. A large amount of arable land is needed to grow fodder for meat production. However, there is a shortage of agricultural land watered by rain, so that expanding agricultural land usually requires artificial irrigation. This trend clearly demonstrates how demand for water is continuously rising. Scarcity drives the need for increasingly expensive water treatment. Global water demand from households, industry and agriculture is increasing by roughly 2% every year and is growing faster than the population.
Sustainable investment in water
Bank Sarasin's Sustainable Research team has compiled a universe of companies that make a sustainable contribution to the supply of water and the treatment of wastewater. The sustainable water universe also includes industrial companies from water-intensive sectors (e.g. paper) that distinguish themselves by their sustainable use of water. All companies in the water universe are first subjected to a sustainability analysis and must receive at least an average sustainability rating compared with their peer group. As with all of Bank Sarasin's sustainability funds, the exclusion criteria nuclear energy and armament also apply.
As the water sector is made up of a large number of subsegments, industries with lower and higher sustainability ratings are represented in the sustainability matrix. The matrix includes companies such as Georg Fischer (GF), Rotork or Kubota from the mechanical engineering sector and the water-specific themes of pumps & valves or irrigation equipment. It also contains companies from the consumer goods and packaging sector (Henkel or Mayr Melnhof), which distinguish themselves through water-saving production processes. The Swiss sanitaryware company Geberit scores an excellent rating.
This rigorous and systematic selection process makes it possible to minimise risks and maximise opportunities. In the last five years the sustainable water universe defined in this way has easily beaten the global equity market (as measured by the MSCI World Index), with a performance of 22%. Given the structure of the water sector, Bank Sarasin's sustainability analysts believe that a global and well-balanced portfolio of water industry shares is an effective option for both private and institutional investors.