View of Water Market from Across the Pond

Associate of UK’s Carbon International sees flood of investment opportunities with focus on infrastructure and ‘green’ technology

• Associate of UK’s Carbon International sees flood of investment opportunities with focus on infrastructure and ‘green’ technology

Increasing water scarcity is a concern rising rapidly on environmental and industrial agendas. While global giants such as GE, 3M and Siemens have actively invested in companies that monitor, manage and improve water supplies, government stimulus cash is now providing the latest boost to the sector.

UK-based environmental investment specialist Impax Group Plc. (AIM:IPX), with a third of its £1 billion under management invested in water-related industries, estimated there are now around 260-280 listed companies with water-related activities representing at least 20% of their business. On average, these companies have outperformed the MSCI World Index in the past five years and have a combined market cap of $200-300 billion.

One of the key investment trends is in infrastructure. In the United Kingdom, it’s estimated up to a third of water transported around the country leaks away from dilapidated pipes. In 2008, the U.S. Environmental Protection Agency announced that 25% of the U.S. water pipeline network was in a poor condition. Government focus on the sector will make a critical difference throughout the supply chain. According to Bruce Jenkyn Jones, Impax’s managing director of listed equity funds, “Regulation is driving growth in the water industry, growth which I expect to be enhanced by the ‘green’ stimulus programmes that many governments are launching.” Indeed, through water projects bills in the USA, up to $20 billion in subsidies have been directed toward investment in water infrastructure.

With funds from government specifically dedicated to infrastructure repair, there should be significant revenue for those companies with expertise in repair, piping and wastewater treatment. This also means pipeline owners and operators need to get information on buried infrastructure, and embed condition assessment programmes into their management strategies. Companies such as Canada’s Pure Technologies Group (TSX-V: PUR), an infrastructure monitoring technology company, are well placed to take advantage of such a need.

Water-quality standards are also driving investments in water treatment and purification worldwide. In the European Union, the Water Framework Directive requires EU member states to achieve “good ecological status” by 2015. Under new EU legislation, lakes and large bodies of water such as reservoirs must meet these new criteria, providing a new market for companies like Phoslock Water Solutions (ASX:PHK) that specializes in products to reduce nutrient levels and prevent algal blooms. According to Nigel Traill, Phoslock’s European manager, 10,000 of the EU’s lakes have been assessed and 40% of EU lakes are at risk of not meeting standards, a level that jumps to 67% in the UK.

The water sector is growing based on a set of strong fundamentals. Most importantly, water management is rising to the top of the global resource management agenda. New legislation is being passed as part of a global response to the problem, and that means new market opportunities are only likely to increase.


About the Author: Felicia Jackson is author of Conquering Carbon: Carbon Emissions, Carbon Markets & the Consumer, published in August 2009 by New Holland Publishers Ltd., and an associate of London-based Carbon International, an investor communications and PR firm focused on environmental industries. It hosted a seminar in July on investing in water. Contact: lucy.evans@carboninternational.com or www.carboninternational.com

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