The call for purity – investing in water and water quality

These are the three key take­aways on the invest­ment poten­tial of water and water quality:

1. Freshwater, a common good, is increasingly exposed to contamination. Ensuring water quality is therefore urgent – and this requires investments.
2. Not only households but also the economy relies on high water quality. Industries, technology, and research require so-called ultra-pure water in large quantities.
3. The medium-term growth forecast for water technology is 6 to 8%, offering attractive return opportunities for sustainable investments in water.

Eight Initiatives for Four Letters: The PFAS debate stirred Swiss politics in early September, with the National Council dedicating a special session to these so-called "forever chemicals." The result: lawmakers now aim to establish strict limits for these often harmful polyfluorinated alkyl substances. Agriculture and water suppliers are particularly in focus.

The call for higher water quality is growing louder

Water quality has now firmly entered the political agenda, also in Switzerland. This is no coincidence. We live in a time when freshwater is becoming scarcer due to population growth and climate change, while also being increasingly exposed to contamination. For decades, the burden has been rising, with pollutants ranging from micro- and nanoplastics to residues from pharmaceuticals, hygiene products, hormones, industrial chemicals, and pesticides. Switzerland is no exception to this negative trend: in 2022, the Federal Office for the Environment (FOEN) reported "permanent" contamination of local water bodies.
 
However, the growing call for cleaner water is not solely due to increasing pollutant levels. In general, demands for water quality are rising. This is driven by households and government regulations, but also by industries and research, which increasingly require water of the highest purity (see graphic below). For the production of computer chips and pharmaceuticals, the standard must be "ultra-pure" – so-called ultra-pure water. All of this underscores the urgency of ensuring higher water quality, which in turn calls for corresponding investments.

From our perspective, this creates attractive growth opportunities, despite the risks of market fluctuations and political or technological changes. These opportunities could interest investors focused on water and water protection. We foresee growth potential not only in households worldwide but also in industrial sectors such as semiconductors, artificial intelligence (AI), and pharmaceutical research and production.

Better water quality through filter technology

1. Opportunities in Water Quality: Filter Technology at the Tap

Population growth and rising global prosperity are driving not only demand but also quality expectations for freshwater. It goes without saying that drinking water should be free of contaminants – households also demand better taste and smell. This is not limited to Western industrialized countries; the Asian market, in particular, is expected to see the highest demand for better water quality.

Newly available filter technologies make it possible to treat water directly at the tap – ideal for use in emerging markets where robust water infrastructure is not always available. These systems often involve multiple filtration stages:

• In the first step, sediments like rust or sand are removed, while activated carbon filters eliminate odors from the water.
• Osmosis membranes then remove heavy metals and microorganisms. Traditional filtration membranes already offer a fineness of 10 microns (one-hundredth of a millimeter), but modern systems achieve a fineness of 1 micron or more. For comparison, a human hair has a diameter of about 70 microns.
• Since healthy trace elements like calcium or magnesium are often removed during the filtration process, they can be reintroduced into the water in a subsequent step.
• Finally, UV light can be used to kill even the smallest microorganisms in the freshwater.

The use of modern filtration technologies is interesting not only for growth opportunities but also from a sustainability perspective: freshwater is scarce and cannot be replenished quickly enough through groundwater. Water quality should therefore be addressed with water already "in circulation." Additionally, on-site filtration can eliminate the need to purchase bottled water, helping to reduce plastic waste.

2. Opportunities in Water Quality: Ultra-Pure Water for Industry and Research

The demands for water quality are even higher when ultra-pure water is required – the result of a rigorous purification process involving multiple filtration, demineralization, and disinfection steps. Ultra-pure water is characterized by a neutral pH value, very low electrical conductivity, and the complete absence of organic and inorganic contaminants.

• Key consumers include pharmaceutical and biotech companies. They require ultra-pure water for research, medication production, cell culture cultivation, laboratory analyses, and sterile cleaning of equipment. The absence of germs in the water is particularly critical, given the strict regulations imposed on the industry by oversight bodies.
• Meanwhile, the semiconductor industry must ensure that the water it uses contains no minerals. The use of ultra-pure water is strategically important for tasks such as cleaning silicon wafers or chemical-mechanical polishing (CMP) of computer chips. The consumption is enormous: a semiconductor factory requires approximately 23 million liters of ultra-pure water per day.

Opportunities in Water Quality: Thirsty AI

The water consumption of data centers for artificial intelligence (AI) calculations is currently in the spotlight. This future technology is not only energy-intensive but also extraordinarily water-thirsty. According to a U.S. estimate, the daily water consumption for cooling an AI data center equals that of 3,667 households. Given the rapid development of AI, this consumption could increase tenfold, according to the estimate. AI data centers also require high water quality: the water must be as free of contaminants as possible, and ultra-pure water is often used.

Interestingly, AI does not have to be a "no-go" for sustainability-focused investors In our opinion, this technology offers great potential for more efficient use of water resources and combating water scarcity by predicting demand, detecting leaks and optimising supply in real time.

Our Conclusion:

In summary, households, industry, and digitalization are key drivers that could lead to above-average demand for high-quality water. The water sector has an average annual growth rate of 4 to 6%, while growth in water quality solutions is even in the high single digits. Meanwhile, global GDP growth expectations are at 2 to 3%. This confirms our hypothesis that sustainable, long-term investments in the theme of water can generate above-average returns.

Investment theme «Water»: Insights