Europe's droughts lead to investment funds targeting the water wasters

The River Rhine in Bingen, Germany, earlier this month. Low levels on the key transport waterway this summer has put the focus on droughts in Europe

As droughts worsen across the world, investors are turning up the heat on companies wasting water and trying to pick winners from a sparse crowd of specialist stockmarket-listed companies looking to address the problem.

From Kenya to California and nearly half of Europe, a shortage of fresh water has grabbed the attention of policymakers and given millions of citizens a fresh window into the stressed state of the planet.

Against that backdrop, a group of investors managing nearly $10 trillion (€10trn) said they planned to step up efforts to pressure boards to better manage the critical resource and could vote against directors of laggard firms. 

Analysis from environmental disclosure platform CDP and Planet Tracker in May showed listed companies could face losses of at least $225bn from risks related to water. "These are no longer far-off events; they are happening right now," said Dexter Galvin, CDP’s global director of corporations and supply chains.

Last week, for example, Toyota suspended production at a plant in China's Sichuan province amid a drought-induced power shortage. Awareness of how fraught the situation is — with 2.3bn people currently living in water-stressed countries, according to the UN — has led a number of asset managers to launch equity funds to tap growing interest among investors to help find a solution.

Global data from Morningstar Direct shows 23 water funds launched over the last five years, with a collective $8bn in assets at the end of July.

David Grumhaus, portfolio manager for the $812m Virtus Duff & Phelps Water Fund, said there has been a "spillover effect" as water crises have worsened.

"When the top news story is that boats can’t make it through the Rhine River and Germans aren’t going to get all their supplies, it does definitely make people think about water and our fund," he said.

Reuters