Should ethical investors dip into water stocks?
Despite environmental and ownership concerns, opportunities exist in the production and delivery of fresh water, say two financial experts.
Just as the world may be peaking in oil production, experts are warning of "peak water" – looming water shortages that many see as an investment opportunity. But profiting from water can be ethically tricky. The Monitor's Laurent Belsie sat down to discuss the issues with Chris Brown, chief investment strategist and portfolio manager for Pax World Balanced Fund, and Eric Fernald of KLD Research & Analytics. Here are edited excerpts of their conversation:Skip to next paragraph
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Is there such a thing as "peak water"?
Eric Fernald: I'd say yes and no. No, it's not exactly a correlate to oil being a finite resource. It's a renewable source. By most estimates, globally, we've only reached a third of our usage of fresh-water capacity. That being said, yes, there is a crisis.... When you have a billion people who don't have access to fresh water, when you have by some estimates 6,000 children dying a day because of lack of access to clean water, these are crisis numbers.
How can you invest in water?
Chris Brown: It's a very exciting theme right now from an investment perspective.... China is probably going to spend about $120 billion on water infrastructure over the next few years. The United States actually has a lot of crumbling infrastructure here with pipes that were put in the ground back in the '50s and now they all need to be replaced. So it's everywhere. And we've focused on water-infrastructure companies.
Water seeps into all kinds of industries. Are some more ethical than others?
Fernald: The low-hanging fruit is the water-efficiency side, where companies are focusing on technological developments to make improvements.
Brown: For example, Emerson Electric is a holding in the [Pax World Balanced] fund, and they provide uninterruptible power sources, surge protectors, which help the efficiency of wastewater-treatment plants. So it keeps these plants running at a very efficient pace. Also companies that make valves and pumps, I think those are pretty exciting [and] probably the least of the controversial companies out there.
And water privatization?
Fernald: You have to tread very carefully and you have to keep close tabs on your investments. There are some high-profile NGO [nongovernmental organization] campaigns now on this very issue. And there have been some very-high-profile cases where companies have had to pull out or lost their contracts – the most famous one being Suez in Bolivia, after mass protests [about] raising the cost of water. South Africa is also going through a very similar conflict.
The issue is: Should private firms own people's water?
Brown: We really have to look at these companies: Are they more focused on profits rather than quality or service? We look at [environmental] violations. Mismanagement of that is an issue and that's something as an investor we have to focus on and make sure they're managing responsibly.
Any company that stands out?