Opportunities and Risks of Water Investments

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Talk given by Andreas Knörzer, Head of Sustainable Investments, Bank Sarasin & Co. Ltd, Switzerland

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  • Opportunities and Risks of Water Investments

    1. 1. Opportunities and Risks of Water Investments Andreas Knörzer Head Sarasin Sustainable Investment
    2. 2. Agenda <ul><li>Bank Sarasin & Co. Ltd </li></ul><ul><li>Sarasin Sustainable Investment </li></ul><ul><li>Water = Sustainability Theme </li></ul><ul><li>Water = Investment Theme </li></ul>
    3. 3. Introduction to Bank Sarasin & Co. Ltd <ul><li>Swiss Private Bank, founded in 1841 </li></ul><ul><li>Specialised in asset management and private banking </li></ul><ul><li>Approx. USD 74bn assets under management </li></ul><ul><li>More than 1,100 employees </li></ul><ul><li>Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Munich, Frankfurt, Paris, Singapore and Bahrain </li></ul>International Private & Institutional Clients Switzerland Asset Management Products & Sales Logistics
    4. 4. Sarasin sustainable investment – A team with character & experience 27 employees 14 years of average job experience 10 different educational backgrounds 8 sustainability analysts (incl. support) 8 languages 6 nationalities Sustainability Research since 1989, continuous build-up, very low fluctuation of staff, responsible for USD 6bn of AuM Economics Ecology Technology Social
    5. 5. Water –key messages <ul><li>Water is one of THE challenges of the 21st century </li></ul><ul><li>Water is attractive for investors </li></ul>Indexed net performance since 31.12.2003 on Euro-basis Source: Bloomberg, own calculations. As of March 31, 2008
    6. 6. Water and sustainability: H 2 O = Life <ul><li>There is no life without water </li></ul><ul><li>Clean water is indispensable for human health and well-being </li></ul><ul><li>There is no alternative to water </li></ul><ul><li>More than 1bn people have no access to clean drinking water* </li></ul><ul><li>2.6bn people are without sufficient basic sanitary facilities * </li></ul>* Source: WHO, UNICEF 2004
    7. 7. Water and sustainability: H 2 O = Economy <ul><li>We use water not only for drinking, cooking and hygiene … </li></ul><ul><li>… but also for agriculture, cooling, power generation, in industrial processes, as a medium for wastewater disposal and for recreation </li></ul><ul><li>Water is an essential resource for many industries (semiconductor, food processing, pulp & paper, chemical and pharmaceutical industries, thermal power generation, textile processing etc.) </li></ul><ul><li>Water is free from nature, but expensive infrastructure is required to deliver potable water and clean wastewater </li></ul>
    8. 8. Water and sustainability: Water use
    9. 9. Water and sustainability: Virtual water <ul><li>There is water in every product („virtual water“) </li></ul>1 cotton t-shirt (250g): 2‘000 litres of water*  factor 8‘000 1 sheet of paper (5g): 10 litres of water*  factor 2’000 * Source: Water Resource Management (2007) 21:35-48 1 glass of orange juice (200 ml): 170 litres of water*  factor 850 <ul><li>Daily consumption of virtual water per person: California 6,000 l, Tunesia 3,000 l </li></ul>
    10. 10. Water and sustainability: Increasing water demand <ul><li>By 2020, water use is expected to increase by 40 percent.* </li></ul><ul><li>The reasons are: </li></ul><ul><li>Population and economic growth </li></ul><ul><li>Growing affluence </li></ul><ul><li>Lack of arable land, rising need for irrigation </li></ul>Source: World Water Council
    11. 11. Water and sustainability: Increasing scarcity <ul><li>Global warming causes changes in precipitation and evaporation patterns </li></ul><ul><li>In 2025 two-thirds of the world‘s population will live in water stressed regions* </li></ul>* Source: United Nations Environment Programme
    12. 12. Water and sustainability: Availability <ul><li>Water is the ultimate renewable resource: There is a never-ending hydrological cycle, driven by the sun </li></ul><ul><li>On average, there is enough freshwater for all of us </li></ul><ul><li>However freshwater is not always available … </li></ul><ul><ul><li>… where we need </li></ul></ul><ul><ul><li>… and when we need it </li></ul></ul><ul><li>The greenhouse effect leads to changing precipitation and evaporation patterns </li></ul><ul><li>Water pollution increases in many countries </li></ul>
    13. 13. Water and sustainability: Economics <ul><li>Water is the lowest-cost commodity </li></ul><ul><li>It is a regional matter, a natural monopoly: There is virtually no trade in water, and no transport over long distances </li></ul><ul><li>In many countries water prices do not cover the costs of infra-structure because of government subsidies </li></ul>* Source: Goldman Sachs
    14. 14. Investment theme water: Improvements in efficiency <ul><li>Solutions: </li></ul><ul><li>Pricing that reflects scarcity </li></ul><ul><li>Billing according to consumption </li></ul><ul><li>Efficient devices </li></ul><ul><li>Efficient processes in industry </li></ul><ul><li>Pollution prevention </li></ul>Affects all water users
    15. 15. Investment theme water: Improvements in supply <ul><li>Solutions: </li></ul><ul><li>Wastewater recycling (e.g. water for industrial processes) </li></ul><ul><li>Desalination of sea water </li></ul><ul><li>Canals, dams and reservoirs </li></ul>Affects Australia, USA, Africa, Asia etc.
    16. 16. Investment theme water: Expansion of infrastructure <ul><li>Solutions: </li></ul><ul><li>Construction of new waterworks, dams, networks, sewage treatment plants (private or public investments + development aid) </li></ul><ul><li>According to the World Panel on Financing Water Infrastructure financial flows (currently about 80bn USD p.a.) need to at least double </li></ul>Affects developing and newly industrialised countries
    17. 17. Investment theme water: Maintenance of antiquated infrastructure <ul><li>Solutions: </li></ul><ul><li>Maintenance and replacement of water treatment plants, networks and wastewater treatments plants (increasingly by private providers) </li></ul><ul><li>E.g. USA: Financing gap up to 2025: 400 bn USD* </li></ul><ul><li>* Source: US Environmental Protection Agency </li></ul>Affects all industrialised countries
    18. 18. Investment theme water: Where the money comes from <ul><li>Water authorities and governments (e.g. Chinese 11th Five Year Plan) </li></ul><ul><li>Private sector (i.e. utilities, water using companies) </li></ul><ul><li>Multilateral financial institutions (e.g. Asian Development Bank’s Water Financing Program) </li></ul><ul><li>Development aid </li></ul>We anticipate the end of increadibly cheap water in many countries because of investment funding requirements. E.g. in 2007 water prices across the globe increased by an average of 8%.* Source: World Water and Environmental Engineering, Jan/Febr 2008
    19. 19. Investment in water: Opportunities <ul><li>„ The dream of pure water for all is within the reach of humanity“* </li></ul><ul><li>Secure sustainable water supply and hygienic sanitation for those who have access already </li></ul><ul><li>The same for those who so far have no access </li></ul><ul><li>Secure food supply </li></ul><ul><li>Avoid conflicts about water </li></ul>* Source: World Panel on Financing Water Infrastructure
    20. 20. Investment in water: Risks <ul><li>Over exploitation of aquifers </li></ul><ul><li>Affordability </li></ul><ul><li>Unkept promises (high prices, low investments) </li></ul><ul><li>Corruption </li></ul>
    21. 21. Responsibly yours

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