Thematic funds: why water portection could offer opportunities
Access to clean water is being challenged by the contamination of micropollutants, such as pharmaceutical residues. This can make water protection an important and promising area within the sustainable investment theme of water.
The "forever chemicals" PFAS not only threaten to occupy us for a very long time, as their name suggests. It is now evident that they are found in many places.
In Switzerland for instance, dozens of sites are now suspected of being contaminated with the sometimes toxic per- and polyfluorinated alkyl substances. As recently estimated by Swiss Radio and Television "SRF" (in German), future remediation could cost up to CHF 26 billion.
Spread Through Water
While PFAS and the particularly harmful subgroup PFOS dominate the headlines, they are far from the only micropollutants causing concern. The issue encompasses a wide and growing range of synthetic and natural microcontaminants that have been entering our environment for decades. A study published in the "Journal Science of the Total Environment" in 2013 identified micro- and nanoplastics, pharmaceutical residues, hygiene product residues, hormone additives, industrial chemicals, and pesticides.
These so-called emerging contaminants add to the already known and monitored environmental chemicals and spread, not least, through water. The significance of micropollutants for access to this natural resource is therefore substantial, and this is a global issue. This should also interest investors who are engaged with the sustainable investment theme of water and specifically with the opportunities in water protection.
Swiss waters permanently polluted?
In Switzerland, the TREND surface water quality measurement programme, organised by the Federal Office for the Environment (FOEN), detected micro-unions in the spectrum from nano- to micrograms per litre in 2022; this was found to be the case in many watercourses in the Mittelland and valley floors. The FOEN found that only six of the 38 watercourses examined in 2022 complied with the ecotoxicological limits – and spoke of ‘permanent’ pollution. The study focused on pesticides and pharmaceutical residues.
Micropollutants – just the tip of the iceberg?
Last year, a highly regarded meta-study on PFAS highlighted the global dimension of the pollution. This can also be observed with pharmaceutical residues (Active Pharmaceutical Ingredients, APIs) in water. A 2021 study by scientists at the Ecole Polytechnique Fédérale de Lausanne (EPFL) noted that such residues have so far been detected mainly in rivers in the Western world.
However, the study authors cautioned that this is likely just the "tip of the iceberg." In samples from 258 rivers in 104 countries worldwide, they found new and sometimes high levels of contamination in emerging markets, particularly in regions such as Sub-Saharan Africa, South Asia, and South America. The concentration of at least one API substance in 25.7% of the samples exceeded safe thresholds for water organisms or antimicrobial resistance. The study concludes that pharmaceutical pollution poses a global threat to the environment and human health and jeopardizes the achievement of the United Nations' Sustainable Development Goals (SDGs).
Overall, water protection presents a challenge in both industrialized nations and developing and emerging countries.
Investment needs and opportunities in water protection
The need for action and investment is significant, especially as governments and regulators are now recognizing the problem. This can provide additional structural drivers for water protection. In Switzerland, for example, the Federal Office for the Environment (BAFU) found that municipal wastewater treatment plants do not or only partially retain micropollutants. However, numerous plants are now being upgraded, which will improve water quality in the coming years.
Investment strategies, such as the sustainable thematic fund "Swisscanto (LU) Equity Fund Sustainable Water", which focus on the long-term investment theme of water, can benefit from such structural drivers. We estimate that the water protection investment sector could offer an annual growth rate of 7%. We define two sub-sectors: direct involvement with companies that develop and implement solutions for water quality measurement or help make water usable for longer, and indirect water protection, which follows the polluter-pays principle and can offer preventive measures for particularly water-intensive and water-polluting industries.
In these sub-sectors, there are various companies that can address the challenges of micropollutant contamination with their solutions. For example, the American company Xylem (see table below), which is active in water treatment and analysis, equips wastewater treatment plants with stages to remove microcontaminants.
The Water technology sector is growing at around 8% p.a.
Revenues in USD billion, using the example of the broadly positioned company Xylem in the water technology sector
The Japanese company Kuraray has also established a leading position in water treatment, focusing particularly on the removal of PFAS. The broadly diversified French utility Veolia announced that it aims to achieve revenues of EUR 1 billion by 2030 with solutions against micropollutants.
First Movers in the Fight Against Micropollutants
Such companies offer the potential to establish themselves as first movers in the fight against micropollutants. However, the race is still open, and in-depth expertise is needed to identify the winners of tomorrow. As the asset manager of the fund for the investment theme of water, Zürcher Kantonalbank has many years of expertise in sustainable investments. The fund complements water protection with the additional investment areas of water technology and supply, thus aiming for greater diversification of risks and opportunities.
Investment theme «Water»: Insights
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© Zürcher Kantonalbank. All rights reserved.
This document only serves advertising and information purposes and is not directed at persons in whose nationality or place of residence prohibit access to such information under applicable law. Where not indicated otherwise, the information concerns the collective investment schemes under the law of Luxembourg managed by Swisscanto Asset Management International S.A. (hereinafter "Swisscanto Funds"). The products described are undertakings for collective investment in transferable securities (UCITS) within the meaning of EU Directive 2009/65/EC, which is governed by Luxembourg law and subject to the supervision of the Luxembourg supervisory authority (CSSF).
This document does not constitute a solicitation or invitation to subscribe or make an offer to purchase any securities, nor does it form the basis of any contract or obligation of any kind. The sole binding basis for the acquisition of Swisscanto Funds are the respective published legal documents (management regulations, sales prospectuses and key information documents (PRIIP KID), as well as financial reports), which can be obtained free of charge at https://products.swisscanto.com/. Information about the sustainability-relevant aspects in accordance with the Regulation (EU) 2019/2088 as well as Swisscanto's strategy for the promotion of sustainability and the pursuit of sustainability goals in the fund investment process are available on the same website. The sub-fund referred to in the document is subject to Article 9 of Regulation (EU) 2019/2088.
The distribution of the fund may be suspended at any time. Investors will be informed about the deregistration in due time. The investment involves risks, in particular those of fluctuations in value and earnings. Investments in foreign currencies are subject to exchange rate fluctuations. Past performance is neither an indicator nor a guarantee of future success. The risks are described in the sales prospectus and in the PRIIP KID. The information contained in this document has been compiled with the greatest care. Despite professional procedures, the correctness, completeness and topicality of the information cannot be guaranteed. Any liability for investments based on this document will be rejected. The document does not release the recipient from his or her own judgment. In particular, the recipient is recommended to check the information for compatibility with his or her personal circumstances as well as for legal, tax and other consequences, if necessary, with the help of an advisor. The prospectus and PRIIP KID should be read before making any final investment decision.
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