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World Water Day 2021 – Valuing water

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BNP Paribas Asset Management
 

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The theme of World Water Day 2021 is valuing water. Water’s value is about much more than its price – water has enormous and complex value for our households, food, culture, health, education, economics and the integrity of our natural environment.

Can we value water highly enough? It is critical, not in financial terms, but with regard to food security, human health, urban and rural settlements, energy production, industrial development, economic growth, and ecosystems. All depend on water. Climate change adaptation and mitigation through water management is vital in sustainable development, and essential to achieving the 2030 Agenda for Sustainable Development as well as the Paris Agreement goals.

The United Nation’s sixth sustainable development goal (SDG) is to ‘ensure availability and sustainable management of water & sanitation for all’ by 2030. The UN 2020 World Water Development Report highlighted the fact that within the 2030 Agenda, water serves as an often unacknowledged but essential connecting factor for attaining the different SDGs.

The need to develop water infrastructure in the developing world is understood, but access to clean water, as a number of water crisis have illustrated, is an issue for the developed world, too.

An ever bigger and broader investible universe

BNP Paribas Asset Management has been running a dedicated water strategy for over 10 years [1]. In recent years, we have seen the universe of investable companies increase and accelerated growth at many water sector companies.

Climate change, pollution and a growing, increasingly urban population all drive demand that innovation and technology can help fulfil. Governments, public bodies and private industry are all investing in new and upgraded infrastructure and the investment momentum keeps gaining pace.

Access and changing preferences

In emerging market regions, such as China, India and sub-Saharan Africa, ‘leaving no-one behind’ mainly requires the development of water infrastructure where it previously did not exist.

It is a positive development driven in no small part by urbanisation, growing populations and changes in consumption patterns that demand higher standards of living.

This isn’t just about access to clean water and water treatment. Many items taken for granted by urban dwellers require a significant amount of water to produce.

Ageing infrastructure

A great deal of the infrastructure in the developed world is outdated, inefficient and/or struggling to meet modern water demands. This was exemplified by the water crisis in a number of municipalities where cost-cutting led to insufficient water treatment and health issues. Numerous projects to replace lead pipes are still continuing, at a very significant cost.

Climate change is impacting water security. In recent years, there have been severe droughts and water shortages that have affected farming yields and industrial productivity and meant loss of income for workers, such as the 2012-16 California and the 2014-17 Brazil droughts.

Most recently, Cape Town, South Africa’s second largest city with a population of some four million, suffered its own water crisis. A lack of rainfall, well below historical levels, meant the city’s main reservoir was close to empty in March 2018. Cape Town residential water use was cut from around 120 litres per person per day in 2015 to 50 litres at the start of 2018.

For officials and residents in these regions, the long-term impact of climate change requires investment in measures including conservation and leak detection. Other extreme weather events such as storms represent a different priority. Here protection and clean-up can be more pressing.

An abundance of opportunities

The investment opportunities in water are surprisingly diverse and resilient. Risk characteristics are comparable to equity markets generally. The opportunities run through the global economy, across markets, sectors and regions. Water provides attractive opportunities throughout the economic cycle, encompassing both defensive and cyclical businesses.

Technology and innovation play key roles in reducing water consumption. Smart meters, for example, can help utilities manage the supporting infrastructure more efficiently, and provide early warning signs and the location of leaks. Public entities and private industry globally are investing in upgrading their infrastructure and this investment momentum looks set to continue.

Advancing the water agenda

By allocating capital towards sustainable strategies or those that seek to effect change, investors can earn attractive financial returns while making a positive contribution to the environment and society.

[1] To learn more about BNP Paribas Asset Management investment solutions that seek to address the water crisis, visit your local BNPP AM website.



Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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