The future of water: Regulation, Innovation, and Investment

Regulatory trends: Politics and innovation promote resilience

In September, the urgency of the global water debate became clear once again. At the International Water Association conference in Bilbao, experts emphasized the need for water conservation in combination with digital technology and painted a picture of a future in which intelligent systems control the use of this scarce resource.

In Brussels, Water Europe called on legislators to consistently implement new environmental laws and prioritize recycling and efficiency. At the same time, a report warned that one-third of the EU’s land area is already under water stress. Another study by Grundfos argued that Europe’s fragmented standards are slowing down investment and that harmonized rules and incentives could enable significant savings.

In the US, the Environmental Protection Agency (EPA) withdrew parts of its own PFAS regulation, but hinted at additional reporting requirements. In addition, more and more companies are rethinking their water consumption and, in some cases, investing in municipal water projects.

These developments illustrate a common direction: politicians and businesses are working with increasing urgency to build more resilient and efficient water systems.

Strategic Projects, Partnerships & Technology

Investments in future-oriented solutions were at the forefront of our investments last month.

• Veolia signed a landmark agreement with Saudi Aramco’s SATORP to build the largest industrial wastewater treatment plant in the Middle East. The investment volume amounts to US$500 million, with operations scheduled to start in 2028.
• ADS announced the acquisition of National Diversified Sales (NDS) for US$875 million. This will expand its rainwater management offering and add complementary products.
• Pentair strengthened its business with municipal utilities with the acquisition of Hydra Stop, while Core & Main expanded its distribution reach with the acquisition of Canada Waterworks.

Technological collaborations also came into focus.

• Xylem is working with Amazon to use its data analytics platform in Mexican cities to reduce leakage rates—an example of the growing importance of digital solutions in water management.
• Halma, meanwhile, launched a decentralized funding program that enables its subsidiaries to support local environmental and social projects.

Focus on data centers

At the end of August, Essential Utilities announced a $26 million investment in a 1,400-acre data center project in western Pennsylvania. Through its subsidiaries Aqua and Peoples, the company will design, build, and operate a facility with a capacity of 18 million gallons per day, drawing raw water from the Monongahela River. Peoples will also provide consulting services for natural gas and energy management.

The data center, which will draw nearly one gigawatt of power from gas and steam combined cycle power plants with battery storage, is scheduled to begin operations in early 2029. CEO Chris Franklin described the project as strategically aligned with Pennsylvania’s energy and AI ambitions and as evidence of Essential’s ability to serve hyperscale customers.

Climate and ESG

Progress has also been made in the area of regulation. The European Financial Reporting Advisory Group proposed halving the number of mandatory ESG metrics and simplifying the double materiality analysis in order to reduce the burden on companies. In addition, ESMA and the European Environment Agency agreed to integrate environmental data more closely into financial supervision. The European Banking Authority recommended not enforcing certain ESG disclosure templates for the time being until legal issues have been clarified.

These measures demonstrate a desire to balance transparency with practicality as sustainability reporting standards continue to evolve.

Conclusion for investors

The water sector continues to offer attractive opportunities, supported by stable supply, constructive regulations, and clear growth initiatives at companies such as York Water, California Water, and Essential Utilities. Suppliers such as Gorman Rupp and Mueller Industries are benefiting from high demand and consolidation. ADS, with its acquisition of NDS, and Core & Main, with its expansion, demonstrate how mergers can create added value. In addition, regulatory developments – particularly in the area of PFAS – will have a significant impact on the investment environment.

At the same time, given the macroeconomic and geopolitical environment, we consider it appropriate to maintain a slightly higher liquidity ratio. This gives us flexibility and allows us to take advantage of opportunities when market fluctuations occur.

We remain cautious on Xylem, as its increased focus outside the water metering business and ongoing integration challenges pose risks.

Overall, we are convinced that our focus on high-quality utilities and innovative technology providers—combined with disciplined liquidity management—positions the fund optimally to participate in the structural growth in sustainable water infrastructure.