Opportunities and Risks of Water Investments

Andreas Knörzer

Head Sarasin Sustainable Investment

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Agenda

• Bank Sarasin & Co. Ltd

• Sarasin Sustainable Investment

• Water = Sustainability Theme

• Water = Investment Theme

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• Swiss Private Bank, founded in 1841

• Specialised in asset management and private banking

• Approx. USD 74bn assets under management

• More than 1,100 employees

• Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Munich, Frankfurt, Paris, Singapore and Bahrain

Introduction to Bank Sarasin & Co. Ltd

InternationalPrivate &

Institutional Clients Switzerland

Asset ManagementProducts & Sales

Logistics

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Sarasin sustainable investment – A team with character & experience

Economics

Ecology

Technology

Social

27 employees

14 years of average jobexperience

10 different educational backgrounds

8 sustainability analysts(incl. support)

8 languages

6 nationalities

Sustainability Research since 1989, continuous build-up, very low fluctuation of staff, responsible for USD 6bn of AuM

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Water –key messages

1. Water is one of THE challengesof the 21st century

2. Water is attractive for investors

Indexed net performance since 31.12.2003 on Euro-basis Source: Bloomberg, own calculations. As of March 31, 2008

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Water and sustainability:H2O = Life

• There is no life without water

• Clean water is indispensable for human health and well-being

• There is no alternative to water

• More than 1bn people have no access to clean drinking water*

• 2.6bn people are without sufficient basic sanitary facilities*

* Source: WHO, UNICEF 2004

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Water and sustainability:H2O = Economy

• We use water not only for drinking, cooking and hygiene …

• … but also for agriculture, cooling, power generation, in industrial processes, as a medium for wastewater disposal and for recreation

• Water is an essential resource for many industries (semiconductor, food processing, pulp & paper, chemical and pharmaceutical industries, thermal power generation, textile processing etc.)

• Water is free from nature, but expensive infrastructure is required to deliver potable water and clean wastewater

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Water and sustainability:Water use

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Water and sustainability:Virtual water

• There is water in every product („virtual water“)

1 cotton t-shirt (250g):

2‘000 litres of water*

factor 8‘000

1 sheet of paper (5g):

10 litres of water*

factor 2’000

* Source: Water Resource Management (2007) 21:35-48

1 glass of orange juice

(200 ml):

170 litres of water*

factor 850

• Daily consumption of virtual water per person: California 6,000 l, Tunesia 3,000 l

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Water and sustainability:Increasing water demand

By 2020, water use is expected to increase by 40 percent.*

The reasons are:

• Population and economic growth

• Growing affluence

• Lack of arable land, rising need for irrigation

Source: World Water Council

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Water and sustainability:Increasing scarcity

• Global warming causes changes in precipitation and evaporation patterns

• In 2025 two-thirds of the world‘s population will live in water stressed regions* * Source: United Nations Environment Programme

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Water and sustainability:Availability

• Water is the ultimate renewable resource: There is a never-ending hydrological cycle, driven by the sun

• On average, there is enough freshwater for all of us

• However freshwater is not always available …

… where we need

… and when we need it

• The greenhouse effect leads to changing precipitation and evaporation patterns

• Water pollution increases in many countries

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Water and sustainability:Economics

• Water is the lowest-cost commodity

• It is a regional matter, a natural monopoly: There is virtually no trade in water, and no transport over long distances

• In many countries water prices do not cover the costs of infra-structure because of government subsidies

* Source: Goldman Sachs

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Investment theme water:Improvements in efficiency

Solutions:

• Pricing that reflects scarcity

• Billing according to consumption

• Efficient devices

• Efficient processes in industry

• Pollution prevention

Affects all water users

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Investment theme water:Improvements in supply

Solutions:

• Wastewater recycling (e.g. water for industrial processes)

• Desalination of sea water

• Canals, dams and reservoirs

Affects Australia, USA, Africa, Asia etc.

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Investment theme water:Expansion of infrastructure

Solutions:

• Construction of new waterworks, dams, networks, sewage treatment plants (private or public investments + development aid)

• According to the World Panel on Financing Water Infrastructure financial flows (currently about 80bn USD p.a.) need to at least double

Affects developing and newly industrialised countries

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Investment theme water: Maintenance of antiquated infrastructure

Solutions:

• Maintenance and replacement of water treatment plants, networks and wastewater treatments plants (increasingly by private providers)

• E.g. USA: Financing gap up to 2025: 400 bn USD*

* Source: US Environmental Protection Agency

Affects all industrialised countries

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Investment theme water:Where the money comes from

• Water authorities and governments (e.g. Chinese 11th Five Year Plan)

• Private sector (i.e. utilities, water using companies)

• Multilateral financial institutions (e.g. Asian Development Bank’s Water Financing Program)

• Development aid

We anticipate the end of increadibly cheap water in many countries because of investment funding requirements. E.g. in 2007 water prices across the globe increased by an average of 8%.*

Source: World Water and Environmental Engineering, Jan/Febr 2008

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Investment in water:Opportunities

„The dream of pure water for all is within the reach of humanity“*

• Secure sustainable water supply and hygienic sanitationfor those who have access already

• The same for those who so far have no access

• Secure food supply

• Avoid conflicts about water

* Source: World Panel on Financing Water Infrastructure

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Investment in water:Risks

• Over exploitation of aquifers

• Affordability

• Unkept promises (high prices, low investments)

• Corruption

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