Greater Awareness of Global Water Risk Attracting Capital

According to a new Carbon Disclosure Project (CDP) report, more than two thirds of global companies surveyed say that water risk could have a big impact on their business, and more companies are pushing water risk issues to the board level. CDP notes that water pressures are a major threat in growth markets such as Brazil, China, India and Mexico.

In fact, the worst drought in eight decades is now threatening drinking supplies Sao Paolo, Brazil, says Bloomberg.

And a recent Wall Street Journal opinion article, published by the author of a recent Brookings report on the topic, argues that new water market tools to promote water trading are necessary, allowing farmers or others who reduce their consumption to lease or sell the conserved water. A market in water, they argue, would encourage efficiency by stimulating innovation, promoting specialization and allowing water to move from lower-value to higher-value uses.

Water VC Gushing

Meanwhile, water and wastewater technology startups are attracting venture capital investors. Corporate and institutional venture equity investment in water innovation totaled $140 million in 33 ventures capital deals in the first half of 2014, which was a 53% increase from the  $91 million raised in the same period in 2013, according to the Cleantech Group.

(See CleanTechIQ’s How Not to Drown investing in the Water Sector)

It’s no surprise that investor interest in the water space has grown, says VantagePoint Capital Managing Director, Stefan Dolezalek, as severe droughts in California and elsewhere has “opened people’s eyes that there must be ways to make money in water.”  Investors are now searching for “up and comers” that can solve these water-related issues, he told CleanTechIQ.

Large corporate strategic investors are active in the space as well. For example, in May, Conoco Phillips made a venture capital investment in Saltworks Technologies, which develops water desalination technologies to convert salt water to fresh water.

Key areas of the water sector with potential for breakthrough technologies include desalination and wastewater treatment, says Paul O’Callaghan, CEO of BlueTech Research, a firm specializing in water technology.

An increasing number of venture capital funds are focusing on the water sector, such as $150 million Toronto-based venture capital fund XPV Capital, which launched after the founders realized the potential for profit after General Electric bought a Canadian water-treatment company, Zenon Environmental, for $655 million in 2006, according to The New York Times. The fund’s investments include wastewater treatment startups Newterra, Filterbox, BCR Environmental, and APTwater.

“The average expected returns out of these companies will be three to seven times the investment,” says XPV Capital co-founder John Coburn. “If you can’t have big winners, then you’d better avoid losers.”  The fund looks for companies on the verge of gaining commercial traction, according to the Times.

(See CleanTechIQ’s list of top private equity and venture capital funds that invest in water technology companies)

Impax Asset Management’s Water Investment Thesis

Speaking at a recent conference on infrastructure investing in New York City, Simon Gottelier, portfolio manager at Impax Asset Management, explained the drivers behind the water sector include new investment to meet the consumption needs of a growing global population increasingly moving into cities, “refurbishment” spend in developed markets to gain an adequate level of water quality, and increasing regulatory oversight, which will spark a total of $550 billion of capex in the water sector per year globally.

Gottelier explained that he puts his water portfolio strategy into three investment buckets: infrastructure businesses, treatment businesses, and utility businesses. He says that the sector’s growth investments can be found in the areas of water treatment, filtration, and water testing equipment companies that are responding to greater government oversight.



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