Dieter Küffer has managed the RobecoSAM Sustainable Water Equities fund since its inception in 2001. The fund delivered a return of 12% last year, almost double the growth posted by the MSCI World TRN Index (6.2%). He provides some useful steps to take for investing in water.
What are the biggest trends on the water market today?
Well there are many. I’ll start with micropollutants found in soil, waterways and lakes, which include pesticides used in farming, traces of medications and chemicals. This has been a problem for many years and is starting to be taken very seriously. In Switzerland, for example, a renovation of the 100 largest wastewater treatment plants is scheduled over the next few years, which will be costly and generate opportunities for sector players. In the US, the Biden administration is planning colossal investments not only to renovate the country’s extremely obsolete pipe systems, but also to deal with the problem of perfluoroalkyl and polyfluoroalkyl substances (PFAS).
Which companies will get these contracts?
First and foremost, companies developing water quality testing solutions. Second, companies offering water treatment services using diverse technologies such as UV water disinfection and reverse osmosis, for example.
Are there any particularly innovative fields?
The agricultural sector is attracting a lot of attention because it accounts for 70% of water usage worldwide. “Micro-irrigation” techniques are growing increasingly efficient and can save up to 80% in terms of water volume. There are also companies developing humidity meters that can accurately determine crop water requirements, which is very useful when you have huge areas of farmland, as is common in the United States.
We’re hearing a lot about desalination as a potential water supply technique. Can you tell us about that?
Desalination is a fast-growing market. However, the process is more appropriate for major urban areas, as opposed to agriculture, due to the high cost involved.
You mentioned that the pipe networks in the US are obsolete… this is also a problem in Europe. Has progress been made in terms of supervision and renovation?
Yes it has. New technologies, including digital technologies in particular, are now being used to precisely monitor the condition of distribution networks. It is possible, for example, to send a tiny ball equipped with sensors through the pipe systems to find leaks. Small robots or vehicles equipped with sensors and cameras are also used in pipes with larger diameters, usually close to wastewater treatment plants. Some companies are even using artificial intelligence to try to predict where future leaks might occur.
What about emerging markets?
Emerging markets are also growth drivers, including for Western companies. China, for example, has invested massively in its infrastructure in recent years. Construction work is usually handled by Chinese firms, but high value-added services such as analysis and monitoring very often go to foreign groups.