Scientific consensus is that climate change is “almost certainly” increasing the frequency and intensity of extreme weather events,1 and recent news lends weight to this concern.
2017 was one of the most active hurricane seasons on record, with the US experiencing six severe hurricanes (Harvey, Irma, Jose, Lee, Maria, and Ophelia). It is estimated to be the most costly season ever, causing approximately $300-$475 billion in damages in the US alone.2 For reference, the most expensive natural event in US recorded history, 2005’s Hurricane Katrina, caused up to $250 billion in damages.3
This winter, Florida residents saw snowfall for the first time in 30 years as the US East Coast was battered by major storms. On the West Coast, Californians first suffered droughts, then the largest wildfire in the state’s history, followed by catastrophic flooding and mudslides.
Meanwhile, major flooding hit India, Pakistan and Bangladesh, and landslides wreaked havoc in Nepal. On the African continent, Cape Town is facing its worst water shortage in 113 years and may soon run out of drinking water, affecting over 40 million people.4
Immediate responses to extreme weather include the use of backup and portable power generation to replace and supplement downed power systems. Companies that help clean up and repair large-scale damage also see an increase in activity. This is not limited to removing fallen trees and buildings. For example, one service that requires specialist knowledge is the identification and removal of hazardous materials.
Longer term planning around storm resilience typically requires huge investment in water infrastructure. For example, water treatment facilities may require upgrading to address contamination during tidal surges and flood conditions.
In addition, the pipes, pumps, and sensors that constitute the systems that remove, collect and transport water are getting ‘smarter’. The integration of digital technology allows these systems to monitor and control water management processes more efficiently.
On February 11, the Trump Administration released the framework for its infrastructure bill. It details plans for $1.5 trillion of investment in US infrastructure over the next 10 years, using $200 billion of direct federal funding over the same timeframe as an incentive. Water-related themes feature prominently in the document, including utilities, wastewater systems, and stormwater facilities. The bill is also notable for its plans to streamline the approval process for large projects (which currently takes five to 10 years), and for its advocacy for further privatization.5
At this stage, the bill is not yet law, and it is likely to undergo many changes before it does become a legal framework. However, its underlying scale and themes provide investors with an outline of the opportunities that may arise as a result of the current Administration’s plans.
We have been researching and investing in water-related stocks since 2002. Over this time, we have seen rapid growth in the investment opportunity, with the water-related investment universe currently numbering almost 300 companies.6 Over fifteen years’ experience of investing in this sector gives us the insight to identify the most promising companies providing solutions to the increasing incidence of severe weather events. The rapidly rising demand for their products and services, partly driven by more extreme weather, should lead to their continued strong growth and out-performance versus broader global equity markets.
For information about the Pax Global Environmental Markets Fund, which invests in companies that are developing innovative solutions to resource challenges – including water, energy, waste, and sustainable food & agriculture – visit the Fund page here.
The statements and opinions expressed are those of the author of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.