Amane Advisors teamed up with RBC Capital Markets to host the 2023 Future of Water Conference in New York City last month. With more than 140 attendees, the invitation-only event featured a series of panel sessions geared toward institutional, private equity, and infrastructure investors, with C-level panelists giving their unique takes on the biggest themes and trends across the water sector.

The day was packed with interesting insights and perspectives on everything from climate change and water scarcity to PFAS and digital adoption.

Here are seven of the key takeaways that shaped many of the day’s discussions.

1. While more companies are saying they are experiencing greater water risk, only a minority of those companies have developed strategies to mitigate that risk.

Amane’s Bill Malarkey (Far left) with panelists (L to R) Radhika Mehrotra of CDP, Slava Libman of FTD Solutions, Sara Mahaffy of RBC Capital Markets and Geoff Adamson of Upwell Water.

The reality of the risks emerging due to increasing water scarcity and extreme weather events were noted in several of the day’s panel discussions. These business risks are significant and varied and can include not only threats to local water supplies and water quality, but also disruptions to production and/or supply chains. Radhika Mehrotra, Associate Director of Capital Markets at CDP shared that more companies than ever are now reporting on their water risks, but the experts noted that water is a ‘local’ issue and businesses are only just beginning to understand the potential impact and severity of these water risks and determining what steps they can take to mitigate the risks.

Panelists also encouraged business leaders to take a broader view when looking at water, not just as a strategic risk, but also as an exciting opportunity. “There are opportunities for product innovation and to improve resilience,” commented Sara Mahaffy, ESG Strategist at RBC Capital Markets. “Looking at companies that are improving on their water intensity metrics is a performance signal, particularly in sectors where water is a material issue,” she added.

2. Water utilities are facing significant and simultaneous challenges – and many of the smaller operators, particularly in the fragmented U.S. market, are not yet positioned to act quickly.

The stakes are high for water utilities around the world who are juggling multiple challenges, including replacing ageing infrastructure, complying with ever-tightening regulatory requirements, keeping pace with population growth, following through on net zero commitments, integrating new technology, maintaining water quality, access, and affordability – and doing it all with an ageing workforce in the context of climate change.

Leaders from some of the largest U.S. utilities were on hand to share how their organizations are trying to tackle these challenges. Rohit Aggarwala, Commissioner of the NYC Department of Environmental Protection said their focus needs to be on ensuring their utility is nimble and agile, noting, “When you have to run an obstacle course, the most important thing is to go to the gym.” The utility is focusing on developing its core strength – focusing on capital investment, hiring, partnerships, and creativity. Randy Hayman, Commissioner of the Philadelphia Water Department, talked about the need to ensure access and affordability for all citizens, even as increased capital investment and cost inflation make rate hikes necessary. He described the innovative affordability programs that his department has instituted to support low-income and elderly ratepayers.

The private sector panelists, which included executives from Veolia and SJW Group, also discussed how they are implementing new technology, including AI, acoustic sensors, drones, and satellites to do more with less to improve service while keeping operating expenses down – particularly in the face of a talent shortage.

3. The water sector is entering the ‘golden age’ of digital and smart water.

Moderator Deane Dray of RBC Capital Markets with panelists Ken Bockhorst of Badger Meter, Snehal Desai of Evoquam, and Mike McGann of Xylem

Panelists in our ‘Fast Movers in Smart Water’ session included leaders from Xylem, Evoqua, and Badger Meter, who discussed the need for digital solutions in water utilities and how they are supporting utilities in the transition. Ken Bockhorst, Chairman and CEO of Badger Meter signaled that the industry is at the onset of a ‘golden age’ of digital and smart water; “Everything in the system can be digital – it’s growing and growing fast.”

Snehal Desai, EVP and Chief Growth Officer and Sustainability Officer at Evoqua added that the focus is on utilizing the data that is collected by digital solutions more effectively saying, “Treatment technology is already smart to begin with – you can’t run a reverse osmosis (RO) system without knowing what’s happening. The smart is about getting to the decisions faster…taking the information and compressing it into action.”

Leaders also discussed the need to meet water utility customers where they are and guide them in adopting digital solutions. “Many think (digital) is all or nothing. But you can be on the journey to get smarter each day. It’s about giving customers a pathway,” added Mike McGann, SVP, President, Americas and Measurement & Control Solutions, Xylem.

4. Leaders are underestimating the capital and resource investment needed to tackle the issue of PFAS and overestimating how quickly it can be deployed.

Experts across several panels agreed that PFAS was going to be a huge driver of spending, with Jon Freedman, who leads global government affairs for Veolia’s Water Technologies & Solutions business, stating estimates suggest the required CAPEX to comply with stringent PFAS regulations in the U.S. could range from $3-$8 million per million gallons of treated water per day. “Whoever has PFAS solutions is going to be selling a lot of them,” he added. Keynote speaker Christopher Gasson, of GWI, argued that the regulations had gone too far and would drain investment from other critical areas of water innovation in the U.S.

While the industry continues to innovate with both PFAS removal and destruction technologies, Evoqua’s Snehal Desai argued that PFAS testing and destruction technology has the greatest whitespace for innovation and growth. “There’s a need for technology that can provide comfort that it’s working as intended and my prediction is that we’re likely to see PFAS testing and destruction provided as a service,” added Desai.

5. When it comes to sustainability, companies are shifting focus from their carbon ‘footprint’ to the ‘handprint’ of their products.

Leaders in the residential and commercial water panel highlighted how the push for sustainability is influencing the way products and services are developed, delivered, and promoted – with consumer behavior driving greater focus on improving water and energy efficiency.

“Fewer people are drinking tap water due to growing concerns over water quality, which is driving demand for filtered water, particularly out of home,” said Scott Clawson, CEO of Culligan. “But water from a plastic water bottle is 1,000 times more expensive than tap and I believe we can make a difference in reducing plastic waste,” he added.

Shashank Patel, CFO of Watts Water Technologies echoed Clawson’s sentiments. “We are shifting from focusing on our company footprint to focusing on our ‘handprint’ – specifically, what impact do our products leave on the Earth and how are we helping our customers reduce their impact as well?”

6. The water sector should be viewed as being less cyclical given the outlook for continued CAPEX growth to support the ageing infrastructure and ensure regulatory compliance.

Keynote Christopher Gasson, GWI

Governments around the world are increasingly providing stimulus spending for water. Namely, in the U.S., the Infrastructure Investment and Jobs Act has $50+ billion allotted to water infrastructure. There are also other regions that have a strong support for water investments including Italy, the Middle East, and India. While China is still investing in its water infrastructure, they have modestly paused spending recently, likely attributed to COVID disruptions.

Overall, water investing is niche, but water touches almost every end market in some capacity, everything from industrial and materials, to consumer and technology. Investors can play this theme in a very diverse non-narrow way. To this end, there is not one water sector, but a whole ecosystem of specialized sub sectors within water.

7. Waste-to-value technologies have the potential to revolutionize the water sector by transforming a waste into valuable resources while reducing the environmental impact.

Waste-to-value is a concept that focuses on recovering and reusing resources from waste streams. In the water sector, waste-to-value involves transforming wastewater, biosolids, and other waste products into valuable resources like energy, nutrients, and clean water. According to our panel, some of the key applications gaining traction in the water sector include anaerobic digestion (turning organic matter into biogas – a renewable energy sources), nutrient recovery (using extracted nutrients from water, such as nitrogen and phosphorus, and transforming them into fertilizer), membrane bioreactors (filtering wastewater for high-quality non-potable water usages), and thermal hydrolysis (using heat and pressure to break down biosolids, producing a more biodegradable product that can be used for energy generation or fertilizer).

Investments in hydrogen will require investments in water. To derive hydrogen, water is passed through an electrolyzer to split/separate the hydrogen and oxygen atoms. And not just any water can be used as feedstock, it needs to be ultrapure water. Therefore, as the demand for green hydrogen increases, so does the need for water treatment equipment. In terms of opportunities, the panel noted that you can co-locate hydrogen production facilities at the wastewater treatment plant, utilizing treated wastewater to generate hydrogen (vs. just pumping the treated wastewater back into the environment).