Career
Menu

Achieving Sustainability

Water in 2023 – is history repeating or just rhyming?

Dry weather patterns and historic low water levels showcase the urgency to ramp up investments in providers of water resiliency solutions.

Key takeaways
  • The current winter droughts and overall dry weather patterns across Europe and beyond showcase the urgency in tackling water scarcity, water quality and water availability issues.
  • Governments globally will be forced to address and mitigate the effects of climate change on water availability and accessibility to maintain their nations’ standards of living.
  • Solving this puzzle will require joining forces with the private sector, creating a supportive business environment for the solution provers.

2022, an eventful year for the Water theme

Record droughts across Europe, floods in Australia, record high temperatures in India in April and forest fires around the world. Monsoon floods submerging one-third of Pakistan, devastating the agriculture sector, and displacing 8 million people. A third consecutive year of a La Niña weather pattern for the Horn of Africa, bringing parts of Somalia to the verge of famine for the second time this century.1

These have all been harbingers of a fundamental change in the world’s climate, the consequence of global warming – with farreaching implications for the global economy as well which seems not well-prepared for the challenges to come.

The implications can take their effect in unforeseen places. Low water levels on rivers have thus halted traffic and driven up shipping costs. Shortages in fresh water might affect the farming industry which with 70% of water use2 represents the largest consumer of water globally, putting further pressure on already high food prices. Low water levels might also lead to lower contribution from nuclear power stations and hydropower plants pressuring energy prices.

During the winter of 2022-2023, Europe and several other regions in the world faced severe drought conditions, quite an unusual phenomenon for the wintertime. Europe’s major waterways like the Po and the Rhine experienced record-low water levels already in midwinter. Countries such as Spain, Portugal, Italy, and Turkey experienced low levels of rainfall, leading to decreased water supply for agriculture and urban use. The drought also affected hydropower production, contributing to increased electricity prices and the need for alternative energy sources. The lack of snowfall in the Alps will lead to lower snow smelting in spring and summer for countries like France, Switzerland, and Italy. Here, the Snow Water Equivalent (SWE, a measure that indicates how much liquid water is stored in the snow), as of end of January 2023 showed a deficit of 35% compared to the average SWE of the past ten years.3 Considering that around 60% of the water flowing in Italian rivers derives from melted snow, low snow levels can be harbingers of an impending new drought season.

According to a study from the Kiel Institute for World Economy (IFW)4 , 30 days of low water levels on the Rhine curb overall inland water transportation by around 25% while under the same prerequisites, industrial production declines by about 1%.

Following estimates of the same IfW analysis the low water period in the second half of 2018 had a peak impact of -1.5% on the level of industrial production.

As reported by the Federal Statistical Office (Destatis)5 , in the first five month of 2022, 86% (equivalent to 71.1 million tons) of all goods transported were ferried completely or partly on the river Rhine, Germany’s most significant inland waterway.

Examples of countries and regions where droughts were severe or ongoing and are causinghavoc and creating further pressure:

France:
In the winter of 2022-2023 France faced unprecedented droughts, which is expected to last until at least the end of summer. The drought has led to reduced hydropower production, causing an increase in electricity prices, compounding the effect of the Ukraine war and the increased cost of gas6 . France is also facing water scarcity, with some farmers having to reduce their crop yields or abandon some fields altogether. The government has taken measures to address the situation, including urging citizens to conserve water and electricity and increasing imports of electricity from neighboring countries.7 However, experts warn that these measures may not be sufficient, and that France needs to invest in alternative sources of energy and improve its water management practices to better prepare for future droughts. President Emmanuel Macron urged consumers to be more careful about how water is used and declared the “end to abundance”8 . The government wants to tackle the increasing water shortage by reducing the volume of water taken from underground sources by 10%, which would mean a drop of four billion meters cubed per year9 . Another planned measure is to contain leaks, which makes up 20% nationally of all water lost.10
Italy:
Italy is similarly suffering from severe drought conditions. The situation has resulted in a significant decrease in water availability for agriculture and human consumption, leading to water rationing and an increase in food prices. Various factors have contributed to the drought, including climate change, the above-mentioned reduction in snowfall and poor water management practices. The government has initiated efforts to address the situation, such as increasing water supplies to affected regions, investing in water infrastructure, and promoting water-saving practices. These efforts will use recovery plan funds of EUR 4.4 billion anchored around wastewater treatment, upgrading water networks, renewing primary water infrastructure, and modernizing the irrigation systems in the agricultural sector.11
Spain:
Spain´s average availability of water has decreased by 12% since 1980 and could further decline by 14-40% by 2050.12 This has pushed the Spanish government to introduce new drought measures which are aimed at reducing water consumption, but which have caused concern among farmers and other businesses that rely on water.13 The measures include reductions in irrigation allowances, which could lead to mass job losses in the agricultural sector. Spain has experienced bouts of severe drought in recent years, which has caused significant damage to crop and raised concerns about water scarcity. The government’s response to the crisis has been criticized by some as insufficient, and many argue that more needs to be done to address the underlying causes of the drought, such as climate change and unsustainable agricultural practices.
Regional focus: Catalonia

Since the beginning of March 2023, nearly 6 million Catalans in 224 municipalities have been affected by severe water restrictions imposed by the Government of Catalonia due to dramatically fallen water supplies.14

These new water-saving measures comprise:

  • A reduction of 40% for agricultural water uses
  • A cutback of 15% for industrial water uses
  • A limitation of 230 liters per day for inhabitants
  • The prohibition of watering of parks and gardens (both public and private) unless watering is done by drop irrigation or with watering cans.
Turkey:

Reports have shown that Turkey is experiencing one of its driest winters on record, with many regions receiving only a fraction of their usual rainfall. This has led to concerns about potential droughts and water shortages, particularly for farmers who rely on irrigation to grow their crops.15 The government is taking measures to address the situation, including promoting water-saving techniques and investing in infrastructure to improve water management16. However, experts warn that more needs to be done in order to ensure long-term water security, such as reducing water waste and improving efficiency in agriculture. The urgency of such measures becomes apparent when one considers that 43.6% of the overall water input volume is considered Non-Revenue Water (NRW), i.e., water that is produced and lost due to e.g., leaks, broken pipes, inaccurate water metering or illegal tapping.17

Horn of Africa:

The Horn of Africa is facing drought trends worse than those witnessed during the 2011 famine, during which hundreds of thousands of people died18. Most affected are Ethiopia, Kenya, Somalia, and Uganda. The Horn of Africa is home to the so-called water tower of Africa, located in the Ethiopian highlands. This region also contains the Grand Ethiopian Renaissance Dam (GERD), Africa´s biggest infrastructure project and, with 6,000 MW, the largest hydroelectric power station in Africa19.

This hydropower project on the Blue Nile River has let to recurrent tensions between Ethiopia and its down-river neighbor Egypt, which relies on the Nile’s water flow for agriculture and energy production. While Ethiopia claims the dam to be an existential necessity, Egypt considers GERD to be an existential threat to its water security. Current drought patterns in the region may exacerbate the geopolitical tensions existing between the two nations, and be a portent for future conflicts around water.

Increasing need for water-related investment spending

Water-related issues continue to make headlines as the mild but dry European winter turns to spring. Investments in water-related infrastructure have come back into investors’ focus and are rising on political agendas. We therefore believe that water remains a secular growth opportunity for investors. To maintain our living standards and deal with the challenges of climate change, it is crucial to consider and increase targeted investments along the entire value chain of the water industry, as the imbalance between supply and demand continues to grow from current levels.

The good news is that water spending is on the rise globally, and governments, corporations and farmers alike have begun to realize the need for urgent capital expenditure. Another good news is that quick wins like fixing leakages or reducing water waste are feasible everywhere, with comparatively little effort. The companies which deliver the required solutions for such resiliency issues are in many cases well-known. One of the largest producers for farming equipment reported strong increases over their first quarter which can be viewed as a bellwether indicator for the entire farming equipment sector.

Given the sound fundamentals of the companies in the water sector, and more interesting valuation levels, the overall outlook for water investments is quite compelling in our view. Recent M&A activity in the sector is another indicator for sound business expectations over the mid-term. Individual corporate profits will play a particularly important role over the months to come, are likely to create a favourable scenario for active managers. Overall, we believe that market participants will increasingly differentiate between “winners” and “losers” at the stock, sector, and country level and that an active theme and stock picking approach will be useful. At the same time, many market valuations are much more attractive than a year ago.

We therefore see opportunities for investors in companies that actively provide quality and resiliency solutions to water scarcity and water quality issues, and which help to improve the sustainability of water resources.

1. UNHCR Impact of Drought on Protection in Somalia, October 2022
2. https://www.oecd.org/agriculture/topics/water-and-agriculture/
3. https://www.rinnovabili.it/ambiente/cambiamenti-climatici/livelli-nivologici-alpi/
4. https://www.ifw-kiel.de/fileadmin/Dateiverwaltung/IfW-Publications/Saskia_Moesle/KWP_2155_low_water_econ_activity.pdf
5. https://www.destatis.de/EN/Press/2022/08/PE22_N053_463.html
6. https://www.cleanenergywire.org/news/catastrophic-winter-drought-france-bodes-ill-europes-power-production-2023
7. Ibd.
8. https://www.euronews.com/2023/02/25/macron-says-it-is-the-end-of-water-abundance-as-he-opens-french-agricultural-show
9. https://www.connexionfrance.com/article/Practical/Environment/Water-management-expert-throws-doubt-on-French-minister-s-drought-plan
10. Ibd.
11. https://www.europarl.europa.eu/doceo/document/P-9-2022-002655_EN.pdf
12. https://www.lamoncloa.gob.es/lang/en/gobierno/councilministers/Paginas/2023/20230124_council.aspx
13. https://newseu.cgtn.com/news/2023-02-10/Water-scarcity-Spain-s-new-drought-measures-threaten-mass-job-losses-1hjwF1AeZTa/index.html
14. https://elpais.com/espana/catalunya/2023-02-28/cataluna-amplia-las-restricciones-de-agua-a-seis-millones-de-personas-ante-la-peor-sequiadel-siglo.html
15. https://www.dailysabah.com/turkiye/turkiye-fears-droughts-amid-lowest-rainfall-this-year/news
16. Ibd.
17. https://www.researchgate.net/publication/309486811_Urban_Water_Losses_Management_in_Turkey_The_Legislation_and_Challenges
18. https://www.aljazeera.com/news/2023/2/22/drought-in-horn-of-africa-worse-than-in-2011-famine-experts
19. htttps://www.amacad.org/sites/default/files/publication/downloads/Daedalus_Fa21_09_Verhoeven.pdf
20. https://www.weforum.org/impact/sustainable-water-management/

  • Disclaimer
    Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Allianz Global Water is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to a strongly increased volatility. The volatility of other Unit/Share Classes may be different. Past performance does not predict future returns. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The Management Company may decide to terminate the arrangements made for the marketing of its collective investment undertakings in accordance with applicable de-notification regulation. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. For a free copy of the sales prospectus, incorporation documents, daily fund prices, Key Information Document, latest annual and semi-annual financial reports, contact the management company Allianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, or the issuer at the address indicated below or regulatory.allianzgi.com. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). The Summary of Investor Rights is available in English, French, German, Italian and Spanish at https://regulatory.allianzgi.com/en/investors-rights The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.

Recent insights

Aerial photo of the main station in Zurich, Switzerland

Sustainability

Climate action: a human right

Countries with insufficient climate actions and policies, may be violating citizens’ human rights - according to a recent legal ruling against Switzerland.

Discover more

by Guirec Thouement | 1 day ago

AI is transforming manufacturing and investors should pay attention

Embracing Disruption

AI is transforming manufacturing – and investors should pay attention

The “Internet of Things” (IoT) has made strong progress over the past decade, with connected devices now commonplace across both households and industry. However, in terms of the promises of IoT translating into tangible productivity gains, we have seen some bumps in the road to wider adoption, not least among systems providers seeking sustainable models for monetizing this quickly developing technology.

Discover more
by Romain Mouquet , Virginie Maisonneuve | 1 day ago

Embracing Disruption

Tapping into the potential of thematic investing

Discover how an unconstrained thematic investing approach can help participating in the growth prospects resulting from an all-encompassing disruption.

Discover more
by Christian Zilien , Andreas Fruschki | 18/06/2024

Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.

Welcome to Allianz Global Investors

Select your language
  • 中文(繁體)
  • English
Select your role
  • Individual Investor
  • Intermediaries
  • Other Investors
  • Pension Investors

  • Allianz Global Investors Fund (“AGIF”)

    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

    • All sub-funds (“Sub-Funds”) may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV. 

    • Some Sub-Funds as part of their investments may invest in any one or a combination of the instruments such as fixed income securities, emerging market securities, and/or mortgage-backed securities, asset-backed securities, property-backed securities (especially REITs) and/or structured products and/or FDI, exposing to various potential risks (including leverage, counterparty, liquidity, valuation, volatility, market, fluctuations in the value of and the rental income received in respect of the underlying property, and over the counter transaction risks). 

    • Some Sub-Funds may invest in single countries or industry sectors (in particular small/mid cap companies) which may reduce risk diversification. Some Sub-Funds are exposed to significant risks which include investment/general market, country and region, emerging market (such as Mainland China), creditworthiness/credit rating/downgrading, default, asset allocation, interest rate, volatility and liquidity, counterparty, sovereign debt, valuation, credit rating agency, company-specific, currency  (in particular RMB), RMB debt securities and Mainland China tax risks. 

    • Some Sub-Funds may invest in convertible bonds, high-yield, non-investment grade investments and unrated securities that may subject to higher risks (include volatility, loss of principal and interest, creditworthiness and downgrading, default, interest rate, general market and liquidity risks) and therefore may adversely impact the net asset value of the Sub-Funds. Convertibles will be exposed prepayment risk, equity movement and greater volatility than straight bond investments.

    • Some Sub-Funds may invest a significant portion of the assets in interest-bearing securities issued or guaranteed by a non-investment grade sovereign issuer (e.g. Philippines) and is subject to higher risks of liquidity, credit, concentration and default of the sovereign issuer as well as greater volatility and higher risk profile that may result in significant losses to the investors. 

    • Some Sub-Funds may invest in European countries. The economic and financial difficulties in Europe may get worse and adversely affect the Sub-Funds (such as increased volatility, liquidity and currency risks associated with investments in Europe).

    • Some Sub-Funds may invest in the China A-Shares market, China B-Shares market and/or debt securities directly  via the Stock Connect or the China Interbank Bond Market or Bond Connect and or other foreign access regimes and/or other permitted means and/or indirectly through all eligible instruments the qualified foreign institutional investor program regime and thus is subject to the associated risks (including quota limitations, change in rule and regulations, repatriation of the Fund’s monies, trade restrictions, clearing and settlement, China market volatility and uncertainty, China market volatility and uncertainty, potential clearing and/or settlement difficulties and, change in economic, social and political policy in the PRC and taxation Mainland China tax risks).  Investing in RMB share classes is also exposed to RMB currency risks and adverse impact on the share classes due to currency depreciation.

    • Some Sub-Funds may adopt the following strategies, Sustainable and Responsible Investment Strategy, SDG-Aligned Strategy, Sustainability Key Performance Indicator Strategy (Relative), Green Bond Strategy, Multi Asset Sustainable Strategy, Sustainability Key Performance Indicator Strategy (Absolute Threshold), Environment, Social and Governance (“ESG”) Score Strategy, and Sustainability Key Performance Indicator Strategy (Absolute). The Sub-Funds may be exposed to sustainable investment risks relating to the strategies (such as foregoing opportunities to buy certain securities when it might otherwise be advantageous to do so, selling securities when it might be disadvantageous to do so, and/or relying on information and data from third party ESG research data providers and internal analyses which may be subjective, incomplete, inaccurate or unavailable and/or reducing risk diversifications compared to broadly based funds) which may result in the Sub-Fund being more volatile and have adverse impact on the performance of the Sub-Fund and consequently adversely affect an investor’s investment in the Sub-Fund. Also, some Sub-Funds may be particularly focusing on the GHG efficiency of the investee companies rather than their financial performance which may have an adverse impact on the Fund’s performance.

    • Some Sub-Funds may invest in share class with fixed distribution percentage (Class AMf). Investors should note that fixed distribution percentage is not guaranteed. The share class is not an alternative to fixed interest paying investment. The percentage of distributions paid by these share classes is unrelated to expected or past income or returns of these share classes or the Sub-Funds. Distribution will continue even the Sub-Fund has negative returns and may adversely impact the net asset value of the Sub-Fund.  Positive distribution yield does not imply positive return.

    • Investment involves risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this [website/material].

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s capital or effectively out of the Sub-Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per share and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the respective Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi/AQ Dis (Annually/Monthly/Quarterly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     


    Allianz Global Investors Asia Fund

    • Allianz Global Investors Asia Fund (the “Trust”) is an umbrella unit trust constituted under the laws of Hong Kong pursuant to the Trust Deed. Allianz Thematic Income and Allianz Selection Income and Growth and Allianz Yield Plus Fund are the sub-funds of the Trust (each a “Sub-Fund”) investing in fixed income securities, equities and derivative instrument, each with a different investment objective and/or risk profile.

    • Some Sub-Funds are exposed to significant risks which include investment/general market, company-specific, emerging market, creditworthiness/credit rating/downgrading, default, volatility and liquidity, valuation, sovereign debt, thematic concentration, thematic-based investment strategy, counterparty, interest rate changes, country and region, asset allocation risks and currency (such as exchange controls, in particular RMB), and the adverse impact on RMB share classes due to currency depreciation.  

    • Some Sub-Funds may invest in other underlying collective schemes and exchange traded funds. Investing in exchange traded funds may expose to additional risks such as passive investment, tracking error, underlying index, trading and termination. While investing in other underlying collective schemes (“CIS”) may subject to the risks associated to such CIS. 

    • Some Sub-Funds may invest in high-yield (non-investment grade and unrated) investments and/or convertible bonds which may subject to higher risks, such as volatility, creditworthiness, default, interest rate changes, general market and liquidity risks and therefore may  adversely impact the net asset value of the Fund. Convertibles may also expose to risks such as prepayment, equity movement, and greater volatility than straight bond investments.

    • All Sub-Funds may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks.  The use of derivatives may result in losses to the Sub-Funds which are greater than the amount originally invested. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV.

    • These investments may involve risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this website.

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s income and/or capital which in the latter case represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per distribution unit and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi Dis (Annually/Monthly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     

Please indicate you have read and understood the Important Notice.