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According to Progressive Investor, a sustainable investment research firm, concerns about diminishing, contaminated water supplies and an aging infrastructure have made the water industry one of the hottest areas for investors. This has pushed company valuations up to historically high levels.
Progressive Investor’s new report, "Investing in Water," claims that the industry will continue to grow but not at a pace that can support these sky high valuations until barriers are removed. The water industry will experience a sea change over the next decade as trends in the industry coalesce.
Over the years, the $400 billion water industry ($100 billion in the U.S) has provided reliable, steady returns to investors -- largely because of dividends paid by utilities -- but the industry as a whole is growing at 4-6% a year (except for certain sub-sectors), not at the heady 15-20% investors expect.
“Investing in Water” notes two main reasons for the impending water crisis. First, the world is running out of fresh water because of uncontrolled growth in population, industry and agriculture—all demanding ever increasing amounts of pure water. Fresh water is also contaminated with thousands of chemicals. The report also notes climate change, which is changing water and weather patterns around the world, as a factor adding to the instability of the market.
Second, an estimated $1 trillion is desperately required to repair, upgrade and build infrastructure worldwide. The 100-year old US & European water and wastewater infrastructure consists of a million miles of pipes -- thousands of which are eroding and leaking. In the developing world, new infrastructure is sorely needed to serve the billion people who currently lack access to fresh water.
While the technology is available to fix the problems, there isn't the money to pay for it. Water is currently managed through subsidies and low prices.
The root of the problem is that water is very cheap, concludes the report.
Water utilities can't afford to upgrade, the infrastructure continues to decay, and individuals, businesses and farms have little incentive to conserve and change their inefficient practices, the report continues.
The report also emphasizes good news about the world’s water. Although a billion people don't have access to adequate quantities of clean water, the other 5.2 billion do (83% of population). Industry and agriculture are becoming more efficient. Awareness of water issues is increasing. And in the end, notes the report, if we draw less and stop polluting, nature will provide free freshwater forever.