Water protection systems: the billion-dollar problem of stormwater calls for solutions

Investment opportunities around stormwater and water protection systems: Key points

1. Increasing stormwater events are causing significant damage worldwide, while effective protective measures are insufficient in many places.
2. Investment in modern and sustainable water management could grow faster than global GDP. Opportunities include conventional water infrastructure solutions, environmentally friendly drainage systems, and digital technologies for more efficient and safer water management.
3. Companies with innovative solutions are likely to benefit from rising demand and, in our opinion, may offer an attractive return potential in the water and water protection systems sector.

The extreme weather report for the year 2025 has yet to be finalized – but already in 2024, mudslides and flooding caused by stormwater and thunderstorms resulted in significant damage of almost CHF 1 billion in Switzerland. The Alpine valleys and southern parts of the country were particularly hard hit, with mudslides triggered by heavy rain in Misox GR, Valais, and the Maggia Valley in Ticino.

It is no coincidence that all these events took place during the summer months. According to a study published in early November by MeteoSwiss and ETH Zurich, high temperatures and more frequent and heavier heavy rainfall are increasingly going hand in hand.

Stormwater – a pressing problem globally

Meanwhile, in Europe, the devastating floods in Catalonia in October 2024 and in Lombardy last September are still fresh in people's minds. Most recently, rainfall caused by tropical storms in Asia made headlines: These days, 335 millimeters of rain fell in some parts of Thailand in a single day – the highest rainfall measured there in 300 years. Tens of thousands of people were evacuated in Thailand, but also in Malaysia and in Vietnam due to floods. Last September, Typhoon Bualoi had already led to the displacement of almost half a million people in the Philippines and again in Vietnam.

The trend is also evident beyond the headlines: extreme events are becoming more frequent, and with them, the cost of damage is rising. Bluefield Research counted an average of 22 storms per year in the US alone since 2020, causing damage of around USD 1 billion. In a study published last May, German reinsurer Munich Re calculated that flood damage alone has totaled around USD 325 billion worldwide in the last five years. The most expensive heavy rainfall event in terms of insured losses to date occurred in Europe: a flood disaster in the Ahr Valley in western Germany in 2021 caused total damage of USD 59 billion (Munich Re).

The costly consequences of stormwater: Global losses due to flooding (in USD billion)

In view of such billion-dollar risks, water protection systems are alarmingly weak. This is once again evident when looking at the United States. According to surveys conducted by the Value of Water Campaign and the American Society of Civil Engineers (ASCE) in 2020, there was already an annual investment gap of USD 81 billion in general water infrastructure in 2019 (see chart below). According to these sources, the shortfall could grow to USD 136 billion by 2039.

The situation is even more alarming when it comes to spending on measures to deal with stormwater, according to Bluefield Research. It notes that, compared to investments related to drinking water and wastewater, stormwater management and the corresponding infrastructure have been largely overlooked and underfunded in recent years. For example, only 7.5% of total funding for the US water sector is allocated to stormwater. 

Inadequately prepared for stormwater: investment gap in water infrastructure in the US (in USD million)

Stormwater: the key growth drivers for water management

Accordingly, there is an enormous backlog of investment, which we believe will benefit companies that focus their products and services on climate resilience, infrastructure development, and hygiene.

1. Investment needs in stormwater management: Capital expenditure (capex) for stormwater management in the US is expected to increase from USD 34.6 billion to USD 54.5 billion between 2023 and 2030 (see chart below), representing an average annual growth rate of 6.7%. This growth is significantly higher than global GDP growth expectations of 2% to 3%.
2. Urbanization and soil sealing as a risk: Increasingly densely populated cities with critical infrastructure are particularly vulnerable to damage from extreme weather events. Increasing soil sealing exacerbates the problem, as less water can seep away and flash flooding and water pollution increase.
3. Pollution caused by heavy rainfall and increasing regulation call for sustainable water protection systems: The increase in extreme weather events has raised public awareness of the need for sustainable water use and water quality protection – and expectations are rising, as we have already pointed out. At the same time, stricter laws such as the US Bipartisan Infrastructure Law (BIL) and the EU Waste Water Treatment Directive (UWWTD) could lead to increased investment in water infrastructure.

Strong growth in investment in water protection systems expected (forecast growth in capital expenditure/capex, in %)

A flood of solutions: protection against stormwater offers investment opportunities

The fueled demand is meeting with an increasingly broad range of offerings, with both established companies and new solution providers seeking to position themselves in the field of stormwater management. The spectrum ranges from traditional "gray" to alternative "green" infrastructure to "smart" digital platforms and monitoring systems.

• Gray infrastructure: A broad network of drains, pumps, catch basins, and water treatment systems is still needed to control and divert the masses of water caused by stormwater and prevent damage to infrastructure and the environment.
  Company example: The US company Advanced Drainage Systems, for example, combines traditional drainage techniques with new materials, such as high-density polyethylene (HDPE) pipes. Another American supplier, Ecolab, is developing filter membranes that are specially designed to cope with large and rapidly occurring volumes of water.
  
• Green infrastructure: As an alternative to extensive construction measures, green infrastructure providers are focusing on solutions that support the natural drainage process. Examples include water-permeable floor coverings and paving. Or so-called rain gardens, which absorb stormwater on site instead of uncontrolled drainage.
  Company example: Tetra Tech, a US company specializing in sustainable infrastructure, offers a wide range of planning and consulting services for municipalities, governments, and companies.
• Smart systems: Digitalization can also help to combat the force of nature that is stromwater. With continuously improved data, extreme events can be assessed more and more accurately and operational decisions on water management can be made in real time.
  Company example: The American infrastructure software developer Bentley Systems, for example, offers a solution that can simulate stress scenarios for existing infrastructure.

Our conclusion: It is crucial to address the problem of increasing stormwater events and to drive forward innovative water management solutions through investment. In our opinion, companies that address these challenges with their services and products can benefit from above-average growth opportunities. This can open up attractive opportunities for investors who are interested in the investment theme of water and water protection.

Investment theme «Water»: Insights