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.