Wealthy investors are becoming more interested in addressing the world’s growing water challenges, whether through direct investing in start-up firms testing new technologies or investing in the public markets.
One reason for their interest, according to Eaton Vance’s Calvert funds: many wealthy individuals are business owners or corporate executives who confront water quality and water scarcity issues firsthand.
“Water is really a multi-dimensional issue,” says Jade Huang, portfolio manager, Calvert Research and Management. “It touches on so much: the economy, society, development, and, really, future economic growth as well.”
Yet the world’s water supplies are at risk. In a recent post on Calvert’s “impact blog,” Huang, a manager of the firm’s Calvert Global Water Fund (CFWAX), details the challenges to clean, plentiful water presented by pollution, climate change, and scarcity, citing World Resource Institute research that nearly half the people in the world may have trouble getting access to water by 2025.
Investors not only recognize the problem as very real, many realize there’s potential in investing in companies that are creating technologies to improve water availability and quality, especially in emerging economies like Brazil or India.
Investing in Solutions
One of Calvert’s strategies is to find companies that are working to solve key water issues, like scarcity and quality.
Opportunities for solving water problems exist throughout the supply side, from water utilities, to infrastructure companies, to waste-water treatment plants, to technology companies that are involved in metering and filtration or improving access to customers.
Examples in Calvert’s portfolio include Itron (ITRI), a U.S. company with global operations that works with utilities to provide smart-water metering, among other services, allowing for more efficient use of water. Another is TOTO (TOTDY), in Japan, which makes efficient household water systems, including toilets.
There are also opportunities to invest in infrastructure companies that should benefit as cities and states rebuild their aging water infrastructure in developed countries, and as emerging countries build out water systems to support growing populations. An example: Companhia De Saneamento Basico Do Estado De Sao Paulo (SBS), a water and waste management company in Brazil.
Calvert also looks for companies that are adept at addressing the risks posed to their businesses from declining water quality and availability, particularly those that use a lot of water, like clothing manufacturers, beverage companies, and semiconductor manufacturers.
“We are homing in on water security issues that companies across sectors are facing,” Huang says.
Because the semiconductor industry needs a tremendous amount of “very high quality water,” for example, Calvert seeks companies that have figured out how to reduce the amount of water they are using. “It’s an area that’s particularly impactful,” she says.
One standout: Taiwan Semiconductor Manufacturing. The company’s leadership identified the extreme importance of effective water management, given Taiwan is a high-risk water region, Huang says. Today the firm re-uses a lot of water while processing chips, including condensation from cooling devices. “They are particularly sensitive and in tune with water scarcity issues,” Huang says.
By contrast, several years ago an Indian subsidiary of The Coca-Cola Bottling Co. had to close a bottling plant in India, and lose its license to operate, “after it was charged with excessive extraction of water and polluting groundwater and soil,” she says. (Calvert doesn’t hold Coke in its index.)
How to Invest
The $400 million Calvert Global Water Fund, launched more than 10 years ago, tracks an index of about 100 companies with a market cap of at least $200 million. To make the list, companies have to have at least 30% of their revenue or earnings connected to water-related activities; there are a handful, though, with less exposure selected for “offering something unique and effective in addressing global water challenges,” Huang says, like desalination technology.
Wealthy investors can purchase Calvert funds directly through their investment advisor, but the fastest growth Calvert is observing among the ultra wealthy is through its Parametric separately managed accounts, or SMAs, where clients can select a specific Calvert fund, like the Global Water Fund, or they can customize a suite of stock and bond strategies following Calvert’s approach to integrating environmental, social, and governance criteria. SMAs also give investors an option to opt out of companies in industries they want to avoid, like oil and gas or tobacco producers.