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RobecoSAM forecasts global water market rebound

08-07-2015 | Press release
  • Global water market expected to reach USD 1 trillion by 2025
  • Water scarcity challenges drive demand for innovative solutions and increase investment opportunities
  • Growth in water market to rebound at an expected CAGR of 5-6% over the next 5 years

Zurich, 8 July 2015 - RobecoSAM, the investment specialist focused exclusively on Sustainability Investing (SI), today published “Water: the market of the future.” According to the study’s findings, demographic change, aging infrastructure, higher water quality standards and climate change are the four key megatrends shaping the global water market which is expected to rebound and reach USD 1 trillion by 2025. RobecoSAM expects companies that are early to respond and take steps to capitalize on the market opportunities associated with solving water-related challenges to gain a competitive advantage and achieve commercial success. In turn, investors with a long-term horizon have the opportunity to profit from the favorable market environment by investing in attractive investment opportunities along the water value chain (see Appendix).

Water: a Global Challenge
The importance of water as a life-sustaining resource is undeniable. Yet while demand for water resources is unlimited, supply is limited. Globally the volume of renewable water per capita has fallen from 28,377 m³ per person per year in 1992 to 19,804 m³ in 2014, roughly a 40% decline over the last 22 years. Population growth, urbanization, and industrial production needs are escalating the demand for water. For example, the amount of water required for energy production is expected to increase between 20-35% by 2035 to meet future energy needs, depending on the energy policy scenarios in place. The need to guarantee access to sufficient quantities of clean and safe water to an ever growing population becomes even more pressing, and opens up opportunities for innovative solutions to what has become a global challenge.

Water Scarcity Drives Demand for Innovative Solutions
Given the secular nature of water scarcity challenges, RobecoSAM expects the demand for innovative solutions that enable the more efficient use of available water resources or enhance the quality of drinking water to continue to grow. As a result, RobecoSAM forecasts the world water market to grow by 1-2 percentage points above GDP growth, reaching USD 1 trillion in 2025.

Daniel Wild, Head of Sustainability Investing Research & Development, RobecoSAM: “Despite global economic difficulties, we are seeing a rebound in the water market. This is being driven by two key developments. Firstly, water scarcity has reached a point where the damage cost of not solving the issues has exceeded the cost necessary to solve them. Secondly, there is currently a lot of liquidity in the market and investors are looking for opportunities with consistent returns and controlled risks – characteristics that investments in the water sector, and specifically in water infrastructure, hold true. ”

Junwei Cai-Hafner, Equity Analyst, RobecoSAM: “New environmental standards, increasing regulations on water quality, especially on industrial wastewater, as well as the upward trend of tariffs to enable cost recovery, all have a significant impact on the growth of individual segments of the water market and, consequently, on the attractiveness of companies doing business in these segments. We find that companies focusing on advanced wastewater treatment, improving water quality, and providing water reuse are interesting long term investment opportunities.“

Investment Opportunities Abound
Based on proprietary calculations using historical data, RobecoSAM identifies four attractive investment clusters according to their respective risk characteristics in terms of equity market volatility and beta:

  1. Utilities: Utilities that supply water and provide wastewater services to residential, commercial and industrial sectors.
  2. Capital Goods & Chemicals: Companies that manufacture water equipment such as valves, pumps, integrated water treatment systems, water treatment chemicals, and irrigation systems across the entire water value chain.
  3. Construction & Materials: Companies that build infrastructure such as water networks, pipelines, water channels, reservoir and treatment plants, or install water meters, which are often linked to commercial, municipal and infrastructure construction projects.
  4. Quality & Analytics: Companies that develop and sell products and services linked to water quality monitoring and testing, systems to treat water at its point of us, and water resource protection.
Top 5 Investment Sub-Clusters Expected annual Growth CAGR 2014 – 2018
1. Reverse osmosis / Nano filtration15.1%
2. Microfiltration / Ultra filtration13.6%
3. Desalination12.0%
4. Industrial solid waste management10.5%
5. Anaerobic digestion10.2%

Global Water Market: Current Environment Supports Growth
Despite the recent economic slowdown, RobecoSAM’s study identifies several factors that support continued growth in the water market. Governments and utilities are recognizing that an appropriate level of tariffs is required to expand and maintain water and wastewater infrastructure to ensure sufficient and safe water supply, and ensure adequate services and profitability. As a result, RobecoSAM expects overall growth in the water sector to rebound at an expected CAGR of 5-6% over the next 5 years with specific areas experiencing faster growth rates.

To learn more about the RobecoSAM Water Study, please go to: RobecoSAM Water Study Microsite.

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