Water as a driving force for investors
Last spring was the second wettest since records began in 1833, according to measurements taken by the Royal Meteorological Institute of Belgium (RMI). We’ve got plenty of water here at home, you might think. But is that really the case? Companies that are looking for solutions to 'the water problem' warrant investor attention now more than ever.
There’s enough water, surely?
Water is one of the most abundant substances on earth. So it seems impossible that there could be a shortage of it. And certainly not here in Belgium, where several regions experienced flooding last spring. That was a big contrast to previous periods of drought. This extreme change in weather patterns is gradually forcing us to face facts. ‘Our strategy of rapidly discharging water through pumping stations, sewers and streamlined rivers is becoming increasingly outdated due to climate change,’ says Anthony Sandra, Portfolio Manager at KBC Asset Management. ‘During heavy rainfall, too much water enters our drainage systems in a short period of time. The result: flooding. Moreover, because the water is drained away far too quickly, we have little water in reserve for times when there is no rainfall for long periods. The result: drought. So, contrary to our instinctive feeling, water is a scarce and valuable resource, which is often unevenly distributed around the world. Some areas face drought, floods, pollution or conflicts over water rights.’
Despite the restoration of higher groundwater levels, we must not rest on our laurels. Periods of prolonged rainfall alternate with periods of drought, so we could soon find ourselves back in the opposite scenario.
Anthony Sandra, Portfolio Manager KBC Asset Management
Every time a natural phenomenon occurs, we hear calls from affected inhabitants to address the water problem. ‘Unfortunately, that’s easier said than done. Managing water sustainably is a global challenge for current and future generations. It’s a challenge that more and more companies and governments are taking on by looking for solutions to manage water efficiently,’ Sandra stresses.
Initiatives rising to the surface
The solution: retaining the water where it falls; this makes flood peaks less likely and allows the soil to act as a ‘sponge’, holding water for times of drought. ‘We aren’t there yet,’ acknowledges Sandra, but fortunately, innovative ideas and techniques are increasingly being developed.’ The Blue Deal, a plan launched by the Flemish government in the summer of 2020 to combat water scarcity and drought, marks an important step in the right direction. It encompasses a range of projects, such as smart water use, restoring and expanding wetlands such as
peat moors and bogs, softer landscaping of streets and public squares, modifying lock systems, .... the list of initiatives is a long one. Examples include the reconfiguration of the Babbelbeekse Beemden flood plain in Duffel and the Gaverbeek river in Harelbeke, which can now meander once again, greatly increasing its buffering capacity as well as its biodiversity’.
‘The measures taken under the Blue Deal are positive, but they are widely dispersed. We are still faced with the problem of insufficient buffer capacity, and use of groundwater for industrial applications has not reduced sufficiently. An overarching approach with rapid, efficient coordination was needed. In 2022, an expert panel adopted the advisory report 'Resilient Waterland', a ten-point plan for water security in Flanders’. In June 2024, four river basins were selected where the expert panel's recommendations will be implemented: around the Herk and Mombeek valley in the Province of Limburg, the Gete river in the Province of Flemish Brabant, the upper reaches of the Yser river and South and Central West Flanders. ‘The aim is to create ‘sponge’ landscapes, with the help and involvement of local residents, farmers, landscapers and industry. At a later stage, we want to roll out this approach to other areas in Flanders under scientific guidance,’ Sandra adds.
Maximising circular water use
‘Sustainable water management is not 100% efficient and established from day one. We have to realise that compromises have to be made to achieve the bigger narrative towards creating a Resilient Waterland. Every project ultimately has some social impact.’
Limited space sometimes necessitates difficult choices, such as striking a healthy balance between expropriation of land and protecting towns and cities from flooding. Not to mention the considerable cost associated with water management. But over time, the investment costs translate into benefits and help to maximise circular water use.
Anthony Sandra, Portfolio Manager KBC Asset Management
As an example, the sugar producer Tiense Suiker, based in Tienen, Belgium, demonstrates that expropriation is not always necessary and that with the right investments a lot can be achieved in terms of water management and opening up space. Last year, the company commissioned a new diffusion tower for the extraction of sugar from beet pulp. This plant not only generates annual savings of 25% in energy consumption and 150 000 m³ of water usage, but also financial savings thanks to the new production process. And the group is going a step further with the 'De Tiense Watervelden’ project, integrating water purification and recreational amenity. Sugar beet comprises 75% water, resulting in an annual water production of one billion litres. Tiense Suiker, together with the Flemish Environment Agency (VMM), plans to invest in an additional purification system that will make the water suitable for irrigation, recreation and drinking water production. Under the plan, the De Watergroep water company would use the adjacent former military site to construct a 600 million-litre water basin which can be used as a buffer during periods of drought, as well as for recreational water sports and an amenity for nature lovers. As a result, surplus water no longer needs to be drained through the Grote Gete river, but can be reused.
The potato processor Agristo worked in partnership with De Watergroep to carry out a similar initiative at its Welsbeke site in 2018. Thanks to an investment in treatment capacity, water from the river Lys can be used instead of groundwater and drinking water in the production process. After use, the water is treated again and either discharged back into the river Lys or reused as process water. This technique has already enabled Agristo to save the equivalent of 650 Olympic-sized swimming pools every year.
Many small tributaries make a big river
The agricultural industry and government are also using innovation to tackle water consumption.
A pilot project focusing on wet cultivation has been launched in the Belgian town of Roeselare. Widening existing watercourses and removing concrete tubes will create space for riparian plants that can be harvested for multiple uses. As an example, cattail is a plant that can be used is useful as roughage, for animal stall bedding, in building and insulation materials and as a roofing material. Water mint can be used for seasoning, while watercress can add the finishing touch to a summer salad. The possibilities are endless, and offer an opportunity for farmers to diversify the use of their farmland.
Using artificial intelligence, farmers can tailor their irrigation to weather forecasts and plant condition, with a significant saving in time and costs. Glasshouse growers currently invest in buffer capacity not only to collect water from their own glasshouses, but also to collect water from neighbouring residents to help surrounding growers in times of drought.
Infrastructure works, for their part, protect coastal areas and rivers from rising sea levels or focus on inland water management. Construction of a combined pumped storage and hydroelectric power plant on the Albert Canal in the Belgian town of Genk is currently in full swing. This plant will generate power during periods when there is sufficient water to drive the locks, and will serve around 1500 households. During long periods of drought, the plant will pump water back when ships are transiting, so that shipping traffic will not be compromised. This plant, along with five others located in Wijnegem, Olen, Ham, Hasselt and Diepenbeek, will make the canal more resilient to the vagaries of the river Meuse,which feeds the Albert Canal.
Riding the crest of the wave of ‘blue gold’
Increasing water demand is completely at odds with decreasing supply and current water shortages in several regions throughout the world. This means that water is a growing market. Water is occupying an increasingly prominent place on the economic and political agenda.
Investors are quite interested in the water theme. With more and more projects under way and the rise of innovative technologies, our water resources could evolve rapidly. There are several options for investors looking to take advantage of this.
Anthony Sandra, Portfolio Manager KBC Asset Management
The innovative approach to water management offers opportunities for investors who want to help support the transition to clean water. Investors are definitely interested in companies that offer water-related solutions, such as consultancies, industrial and construction companies that contribute to more efficient water management in production processes, water treatment, water infrastructure management and storm water management, and companies that are focusing on water-saving irrigation technologies for agriculture.
‘Investors looking to benefit from the growing water market are therefore well advised to cast their net sufficiently widely. Careful analysis of the opportunities and threats remains important. Not everything that glitters is ‘blue gold’,’ Sandra concludes.
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This article is informational only and should not be considered investment advice.