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Water and Pandemics-Alina Donets-Allianz Global Investors

Water and Pandemics

By Alina Donets, Allianz Global Investors

The COVID-19 pandemic has brought much uncertainty to human lives and the global economy, questioning a wide range of established beliefs and predicaments. In this turmoil, the water theme has not remained immune, facing many ambiguities and difficulties but also potential opportunities to be explored.

Allianz Global Investors-logoWe first assessed whether COVID-19 can spread through the water and sewage systems. Thankfully, it cannot, due to the virus’ characteristics.

Once this key safety question was answered, other important considerations followed, including whether water utilities could ensure consistent water supply and sewage operations while the world remained closed for business. This had to be carried out despite the distancing measures and the health risks for the employees, as well as restricted supply chains.

Looking forward, the water industry now needs to consider the resilience of this essential service in the light of future risks, be it against pandemics or other unexpected but highly impactful emergencies. In addition, investors now must assess the short-, medium- and long-term implications of the pandemic on businesses. Understanding these impacts will help to identify attractive opportunities and future winners.

The ability of water investments to navigate these headwinds will determine their ability to recover from the recent market pullback, as well as their competitive positioning in the future. More importantly, this pandemic further empathizes the importance of water for the wellbeing of our societies.

COVID-19 and Water-borne Pathogens

While SARS-CoV-2, the virus that causes COVID-19, spreads through air-droplets, the WHO has confirmed that it has not been detected in water sources.1 Furthermore, the virus has been characterized as unstable, making it susceptible to traditional disinfectant chemicals such as chlorine, which is often used in the water treatment process. This strand is different from SARS-CoV, the virus that causes severe acute respiratory syndrome (SARS), which had a large outbreak in 2003. Back then, a sewage leak in Hong Kong caused human infection through the release of droplets containing the virus into the air. The WHO concluded that poor plumbing in Hong Kong led to the spread of the virus.2 Fast forward to 2020, it is fortunate that the COVID-19 virus cannot be spread through water.

Water Quality: Treatment Focus

Today, water treatment systems are generally effective in killing a wide range of known and unknown bacteria and viruses, including coronaviruses. The pathogens that fall under this umbrella encompass those of specific significance and proved risk of spread through water.

Most viruses and bacteria can be killed with a handful of common water treatment methods, such as several chemicals and/or UV light treatment. Usually, utilities would opt for a combination of both, as different bacteria can survive different sanitation measures. Despite the resilience of some virus families to common disinfection methods, these measures are generally deemed adequate to provide safe drinking water, creating no significant health hazards.

Ultimately, countries with better developed water infrastructure have better success preventing these types of outbreaks, as they have technology that kills most known water- and sewer-borne pathogens.

The developed world has worked to establish effective standards and treatment when it comes to water quality. For example, US regulation requires 99.99% of viruses to be removed from the water, utilizing several treatment technologies.

In emerging markets, which often have poor infrastructure, the situation can be quite different. This is not necessarily due to weaker standards of pathogen regulation, but due to lower sewage infrastructure penetration or poorly enforced standards. For example, only 50% of Brazil’s population is connected to a wastewater system.3 Globally, 25% of the population is exposed to contaminated or poorly treated water. Of that 25%, half is located in emerging markets.4 This insufficiently treated water is, in turn, responsible for 90% of worldwide deaths from diarrhea.5

Unsurprisingly, water quality and treatment solutions are among the top spending priorities for both water utilities and governments worldwide.

Water Supply: Resilience of Infrastructure

Water treatment is not the sole solution to create a safe supply of potable water. As the world remains isolated at home waiting for the virus to be contained, utilities are working around the clock to ensure seamless continuation of water supply while simultaneously ensuring the safety of their employees.

Now, more than ever, this is a testament to the global importance of water utilities. To be prepared for future pandemics, we must reassess our emergency preparedness plans as well as the resilience of our current infrastructure. This pandemic has prompted additional sanitation measures to ensure that unlike with the SARS epidemic, this virus will not be transmitted through water. Utilities have already started working on new water technology to ensure the adequate treatment and detection of any contaminant and the resiliency of this finite resource.

Greater Sanitation

There has been much innovation of late to reduce the spread of viruses. Recently, there was a proposal for pre-treating wastewater in highly susceptible and dense areas such as hospitals before it reenters the sewage system.6 This would eliminate a significant portion of contamination risk resulting from wastewater. It should also include increased sanitation services at highly contaminated sites with effective disinfection agents. Sanitation service companies have seen an increased demand for their services during the pandemic. They have helped numerous clients such as hospitals and other institutions ensure the safety of their staff and continuity of essential services.

Quality Monitoring

Another important aspect of water safety is quality monitoring. We have seen a growth in this field as water utilities and governments seek to identify contaminants before they significantly harm the source. It is clear that water testing needs to be scaled for greater precision and detection of microbial contents. Firms that specialize in water quality monitoring help this goal by ensuring comprehensive water testing while also helping to impose additional sanitation measures.

Automation

Lastly, water services and workers within the water infrastructure industry are essential. It is estimated that half of US water utility firms prepared adequately for the pandemic. Many of these companies worked to create on-site living quarters to ensure continuity of water to citizens without increasing the risk of workers infection.7 One leader within the industry is a water utility in the Midwest that kept several workers across three water treatment facilities living on-premise to ensure water supply to over half a million people.8

While most of the utilities worldwide managed to sustain their operations, relying on their dedicated workforce and some level of automation sufficient to run the infrastructure with minimal human contact, these systems are not yet fully optimized. Utilities have already started to plan for increased automation, including better distance management, invoicing and meter readings. A large European-based utility firm has discussed increased digitalization to target better wastewater management and water optimization. As a result, water technology firms have seen a growing demand for their IT solutions.

Outlook

COVID-19 has and will continue to cause significant hardship for the global economy. Water-related investments are not fully immune, as the financing of many essential infrastructure investments is now under increased scrutiny. What remains clear, however, is the number of incremental measures required at the water infrastructure level that will support continued targeted spending. Resilience of water infrastructure has never been more important, and the social value of water has never been this high. As a result of this pandemic, many utilities have gained firsthand experience testing their emergency preparedness and business continuity plans. There remain numerous opportunities for improvement and automation within this field, and a result, there will be an acceleration of spending on water-related technologies.

As the world starts to reopen and we evaluate the “new normal,” water technology and smart water solutions will become even more essential to ensure adequate clean water for all. The societal need for these investments remains, which will result in continued demand despite the uncertain economic future we face.

 

Article by Alina Donets, co-lead portfolio manager, and a vice president with Allianz Global Investors, which she joined in 2017. She co-manages the Water strategy; and is a member of the Global Thematic team where she researches and develops investment themes globally, with a specific focus on themes aligned to SDGs and other societal goals. Ms. Donets previously worked as a portfolio manager at Bank Audi. Before that, she worked as an investment manager on thematic funds at Pictet Asset Management. Ms. Donets has a B.Sc. with honors in business studies from Cass Business School (London), and an M.Sc. with honors in International business from HEC (France). She is a CFA charterholder.

Footnotes:

  1. https://www.aquatechtrade.com/news/article/coronavirus-and-water-wastewater-global-advice/
  2. https://www.who.int/mediacentre/news/releases/2003/pr70/en/
  3. https://static.btgpactual.com/media/brut170308-water-privatization.pdf
  4. https://www.who.int/topics/water/en/
  5. https://journals.plos.org/plospathogens/article?id=10.1371/journal.ppat.1004867
  6. https://www.sciencedaily.com/releases/2020/04/200403132347.htm
  7. https://www.epa.gov/newsreleases/epa-urges-states-support-drinking-water-and-wastewater-operations-during-covid-19
  8. https://www.iowapublicradio.org/post/utilities-aim-keep-specially-trained-employees-healthy-and-working#stream/0

Disclosures

Investing involves risk. Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This communication’s sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP (Australian Registered Body Number 160 464 200) is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

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