A Perfect Storm for Water

‘Growing world population will cause a “perfect storm” of food, energy and water shortages by 2030’. That is what a UK Government chief scientist told attendees at the Sustainable Development conference in London yesterday. Prof. Beddington told the group that demand for food and energy will jump 50% by 2030 and for fresh water by 30%, as the population tops 8.3 billion.

Despite this, investment in water deals represented just 1.8% of the total investment in the Clean Technology area in 2008. There are number of reasons for this and also signs that this is changing.

The Venture Capital Community has been slow to invest in the water sector. Last year out of a total investment of $8.4 billion into clean technology ventures, just $148million (1.8%) is reported by the Cleantech Group by having been made into water. Why?

Some companies are not convinced that there is enough activity in the sector. Others feel it is a conservative market. However DFJ just made their first investment in water by investing $10M into Oasys Water, a US company with a forward osmosis technology.

The Artemis Project is running a ‘Water Top 50’ to identify companies with game changing strategies in the water sector and to demonstrate to the VC community that there are quality opportunities in this space. Global Water Intelligence has number of potentially disruptive technologies as entrants in their ‘Water Idol’ competition and overall several Water Indices, while showing losses, are still outperforming major stock indices.

One of the problems with water is that we only use it once. Of the wastewater which is collected globally, 38% is actually treated and only 5% of that is actually re-used. Michael Braungart, the author of ‘Cradle to Cradle – remaking the way we make things’, is addressing this issue at the Water Meets Money Conference in Zurich with a talk entitled ‘The End of Wastewater’.

So yes, it may be a perfect storm in terms of water shortages, but it may also be a perfect storm which will see innovation, the end of wastewater and new ways of using and managing this resource.

This post is submitted by Paul O’Callaghan founding CEO of O2 Environmental .

Market Turmoil ….. just when you thought is was safe to invest in Water!

With the recent turmoil in the markets, optimism has been a commodity in short supply and good investment opportunities as scarce as hens teeth; though this may be changing if you believe Warren Buffets ‘buy now’ call. In the midst of this, two  new water based investment funds were recently launched.

On September 30, 2008, the investment group Calvert launched the Calvert Global Water Fund (CFWAX). This fund is its latest Sustainable and Responsible Investment (SRI) mutual fund, part of a new series of investment portfolios known as Calvert Solution™ Strategies. Calvert have partnered with KBC Asset Management International, Ltd., of Dublin, Ireland, to sub-advise them on the management of this fund. KBC apparently ‘boasts an eight-year track record of strong performance in the global water sector’. Be that as it may, their timing for the launch probably wasn’t great given the stampede out of equities and they have dropped 18% from $15 at the start of October to approximately $12.20 today.
KBC say that they stay on top of the technological issues involved in the water cycle through its outside environmental advisory committee of scientists. Jens Peers, lead portfolio manager of the Calvert Global Water Fund says ‘we believe that no other water asset management group has set up a comparable committee of unbiased experts.”
Another recent development was that Four Winds Capital Management launched the first London listed water fund on July 24th. The fund, which is referred to as the Aqua Resources Fund was launched on the London Stock Exchange and will invest in water related assets in areas such as infrastructure, technology, recycling, treatment, distribution and water to energy, mainly by taking direct stakes in unquoted companies and projects. The investments must be at least 60% involved in water activities.

Aqua Resources could have done with some help on their website however, it really isn’t very inspiring, it doesn’t have very much meat to it and contains platitudes such as ‘The Company intends to implement its investment policy via its investment strategy. Using global research and sourcing, the Company intends to build a portfolio focused on investments that offer water-related returns.’ Yawn!

However one thing which differentiates Four Winds from other water funds is that they are focused on unquoted assets. This enables them to access a broader base of investments and go after small cap, pure plays, in the water sector. Most other water funds focus on public equity investments with significant non water business activities, e.g. Nestle and General Electric. Leonora Walters provides some good commentary on this at the Investegate.

Despite all the long term positive signs and reasons to invest in water, this didn’t however stop a number of water indexes from taking a hammering in the past few weeks, the ISE-B&S Water Index (^HHO) is down approximately 30% since the start of August and the Global Water Intelligence (GWI) Global Water Index was down 9.9% between 10th August and 19th September 2008. So it seems like in the old movie, when people hear the scary music they still go running for the beach. 

Paul O’Callaghan is the founding CEO of the Clean Tech development consultancy O2 Environmental. He lectures on Environmental Protection technology at Kwantlen University College is a Director with Ionic Water Technologies and an industry expert reviewer for Sustainable Development Technology Canada.