Water is, by its very nature, everywhere. Even in investor portfolios. But the sector is largely ‘unquoted’ – there are a dozen water companies supplying England and Wales, but only three of these are listed on the London Stock Exchange – the rest are generally privately owned through entities such as pension funds, sovereign wealth vehicles and private equity.
However, this sector does have significant investment needs – and it regularly uses the bond market to help finance its infrastructure spending. The long-dated nature of the sector’s assets means it is looking for long-dated lending – a perfect match for fixed income investors with long-term investment horizons.
If any sector was an obvious candidate for ESG (environmental, social and governance) analysis, it is water. However, the ‘off the shelf’ research that is easily available on listed companies doesn’t exist for bond investors; it needs to be done in-house. This presents a number of questions – not least, what are the factors that matter, and how do we assess these?