How investors can practice water stewardship
The water challenge is not only a social and environmental issue, but also an economic one. The economic gains from reduced death and illness from water-related issues and improved productivity is estimated to range from USD170-560bn per year1.
While the freshwater cycle is strongly affected by climate change, direct human activity is now the dominant driving force behind the functioning and distribution of global freshwater systems2. And as fresh water comes under strain from both fronts, investors can promote sustainable water access that respects nature’s systems through several means.
Large asset owners and investors have several means of participating in water stewardship
1. Listed companies
Active ownership: Through due diligence and active ownership, investors in publicly-listed companies can encourage these companies to shift their operations towards nature-based solutions in line with the human right to water principles. Practicing active ownership can be done through proxy voting at annual general meetings (AGMs) and through direct engagement with company management, either bilaterally or collectively through investor initiatives like the Valuing Water Finance Initiative.
Water solutions: Investors can also direct capital to listed companies providing water solutions. Examples of these include companies that develop water-treatment systems and other critical water infrastructure components such as efficient and cost-effective water treatment processes to improve water quality, pipe rehabilitation, monitoring and upgrades to lower non-revenue water.
2. Sovereign bonds
When new sovereign bonds are issued, large investors can engage with the bond issuers regarding development of constructive water policies, with emphasis on the human right to water and sanitation and that SDG6 principles are upheld.
3. Green bonds
Some infrastructure bonds, like green bonds, support the development of new and improved treatment works and distribution networks through attractively priced debt that is linked to service delivery goals. Furthermore, engaging with the issuers of suchinstruments can help ensure the effective implementation of SDG6 and that the human right to water and sanitation is respected.
4. Early-stage private equity
Sometimes the most innovative solutions providers are privately-held companies, including those developing smart meters and monitors for real-time data gathering, transmission, analysis and presentation. These investments are inherently higher risk, but with greater potential financial return should they prove successful.
Donors can target projects that support the deployment of full-service water networks in informal settlements to ease the cost of connection along with sustainable cost recovery tariffs. They can also support the training and capacity building of water utility managers and operators to adopt and share best practice in watermanagement and raise awareness of the SDG6 principles.
Private capital can be effectively deployed to help the world move towards universal access to safe water and sanitation. The risk-reward from such investments can be as attractive as mainstream investments in the equivalent asset classes. At the same time, practicing active ownership focused on decreasing any negative impact an investment might have on the water cycle can also decrease the long-term risks associated with that investment.
Pictet Water Stewardship Principles
Pictet intends to support and promote the principles of SDG6, the human right to water and sanitation and their universal access, throughout the Pictet Group:
Listed-impact equities: Continue to manage equity strategies that allocate capital to water and environmental companies and promote the principles of SDG6 through active ownership
Government bonds: Engage with sovereign issuers to support policies to implement these principles.
Corporate bonds and listed equities: Engage with issuers that have a material impact on the water cycle to support these principles and apply best practices around sustainable water usage (e.g., through the Valuing Water Finance Initiative).
Private equity: Systematically apply best practices to water management when investing capital in private equity ventures or projects in either the water space or an area affected by or impacting the water cycle.
Philanthropy: Continue to fund water projects that support the principles of SDG6 through the Pictet Group Foundation, where financial returns are not possible or appropriate or grant funding is required at inception.