Soaring water risks spell opportunity for investors

Ahead of the launch of World Water Week on Monday, new research suggests rising water risks around the world are presenting huge commercial opportunities for water infrastructure firms and investors.

The latest results from Standard & Poor's Global Water Index, released yesterday, reveal that utilities and other water-related firms are outperforming the wider stock market as demand for water infrastructure continues to rise.

Over the past five years, the total return from the S&P Global Water Index reached +7.3 per cent, comfortably outperforming the 0.2 per cent contraction recorded by the general S&P 500 index over the same period.

There are also few signs that the sector's strong performance is slowing down, with the value of constituents of the S&P Global Water Index rising by 32.7 per cent last year, outperforming the S&P 500 by 6.2 per cent.

The index contains 100 firms operating almost entirely in the water sector, including utilities and providers of water equipment and infrastructure, such as Swiss sanitary technology firm Geberit AG Reg and French giant Veolia Environnement.

The relatively strong performance of water firms is amplified by the well-documented struggles faced by many large cap companies in recent years, but it is also being driven by a growing realisation that investment in water infrastructure must increase over the coming decades, according to Steve Goldin, vice president of strategy indices at S&P.

"There is huge demand for water in both industrialised and emerging markets, " he told BusinessGreen.com. "One billion people live in water-stressed areas, while in many developed countries there has been decades of underinvestment in infrastructure. Add in climate change risks and dese rtification in countries such as Spain and Australia and some estimate $4tn (£2.6tn) will have to be invested in water infrastructure over the next 20 years."

He added that the commercial opportunities for investors are boosted further by the fact that governments cannot allow water supplies to become unstable, meaning that large-scale water investment programmes are all but inevitable.

Moreover, there are a relatively small number of water firms addressing the market, meaning that competitive risks for investors are lower than in many growth markets.

"When I first looked at the sector closely I was shocked and amazed by the scale of the opportunity in the market," said Goldin. "We are definitely now seeing growing interest in the sector."