by J. Groß, B. Krämer and F. Pöpsel, Euro am Sonntag
NUsually the bad news comes from India or the countries of the Horn of Africa: drought, water shortages, poverty. However, the current disaster is happening on our doorstep: Italy has declared a state of emergency in five regions due to extreme drought.
It hasn’t rained on the edge of the Alps and along the Po river for months. And while holidaymakers are surprised that the water level in Lake Garda is more than 50 centimeters lower, the situation is threatening the livelihoods of many farmers. In the fertile plain between Milan and Turin, the rice fields for the famous risotto rice are dry. With any luck, farmers will get 50 percent of the usual harvest. Once they can compensate for the loss – but if the situation repeats itself in the coming years, as climate models predict, people will have to find another way to make ends meet.
Valuable scarce commodity
In early summer, Spain and Portugal were drier than they had been in 1,200 years. Cargo ships on the Rhine had to drastically reduce their loads in the past few days because the water level is so low. The situation is reminiscent of 2018, when industrial companies came under pressure because they could no longer be supplied via Germany’s longest river.
Water is becoming scarce, even though more than 72 percent of our planet is covered with it. It is found frozen in the great oceans, rivers, lakes and at the poles and on the mountains. The problem: Only three percent of the total amount of water is fresh water, of which only about 0.6 percent is usable. This relation alone between available water, fresh water and usable fresh water shows how valuable drinking water is on our planet.
Climate change just one factor
According to UNICEF, around 2.2 billion people worldwide have no access to clean drinking water. That is more than a quarter of the entire world population. According to forecasts, this number could even double by 2050. Already today, around 800 million people, especially in Third World countries or rural regions of developing countries, do not even have a basic supply of water. This is also dramatic because diseases spread particularly quickly without water and hygiene. According to a forecast by the environmental organization WWF, by 2030 there is a risk of “a dangerous worsening of the global water crisis”. Supplying growing humanity with drinking water is considered one of the key tasks of the 21st century.
Climate change is to blame, many are now thinking. However, the answer is not that simple. There are many factors that affect the water supply. In addition to global warming and the associated drought, the increase in the world population plays a decisive role. The number of inhabitants on our planet is growing by about 80 million people every year. That alone leads to an increased demand for fresh water of around 64 billion cubic meters per year. Experts from the UN have calculated that the world population will consume up to 40 percent more water in 2025 than in 2015. Last but not least, the changed eating and living habits are contributing to this. The middle class, which is constantly growing in many countries, is adopting the extremely water-intensive Western lifestyle. Residents of industrialized nations use around ten times as much water as residents of emerging and developing countries.
According to a study by the United Nations, around 114 billion dollars would have to be invested in water infrastructure every year by 2030 in order to counteract this trend effectively. However, due to a lack of money in the coffers of the developing countries or due to the lack of political will in the industrialized countries, only a small fraction of the necessary sum is actually made available.
Investments in the supply of clean drinking water and in wastewater disposal not only contribute to health and quality of life. They also promote economic growth. According to estimates by the World Health Organization (WHO), every dollar invested generates a return of three to $34, depending on the region and the technology used. Investing in water stocks is not about investing in companies that overprice or waste the vital resource and fail to invest in infrastructure maintenance. Rather, it is about providing financial support to innovative companies that are committed to sustainability and use water responsibly, use it more efficiently or promote new technologies for more efficient use, treatment or purification of water.
Water shares are sustainable in several respects: in terms of the environment, the business model and the price and dividend development.
The Global Water Index, which includes the world’s 50 largest water stocks, has increased by more than 50 percent in the past three years alone. Companies such as American States Water or California Water Service (see investor information) are also among the highest-dividend stocks in the world.
Sustainable portfolio
Not only solid individual stocks but also top funds are suitable for an investment in water treatment. The Swisscanto Sustainable Global Water is one of the veterans among the water funds. The management team invests primarily in water supply, water technology and environmental services. Most important investment criterion: sustainability. The portfolio is classified as a “dark green” Article 9 impact fund and has an “A” €uro Eco rating. In recent years, the fund has outperformed its peers and laid by 162 percent in ten years.
INVESTOR INFO
Founded in 1929, the American group operates in three areas, mainly in California: water, electricity and water and/or sewage services. The services also include the operation, maintenance and construction of facilities for water and waste water systems. American States Water is considered a reliable dividend payer. A dividend has been paid annually since 1931 and the dividend has even been increased every year since 1954. The stock is a solid water investment.
California Water Service
The company is the third largest publicly traded water utility in the United States. The larger part of the business consists of the storage, treatment, distribution testing and sale of water – not only for private households but also for the industrial, public and fire protection sectors. Although sales in 2021 were slightly below the previous year at $790.9 million, they are expected to rise again to around $837 million in the current year.
The Swisscanto Sustainable Global Water focuses on water issues such as supply, technology and purification. Over the past ten years, the portfolio has returned an average of over 10 percent per year, a very respectable performance. Investments are mainly made in the USA. The most heavily weighted positions currently include the wastewater specialist Waste Management, the life sciences group Thermofisher and the utility Essential Utilities. Recommended.
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Image sources: Istockphoto
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