Norges Bank Investment Management manages the Norwegian sovereign wealth fund, worth approximately 800 billion dollars and holding 1 percent of global equity markets.
What I am saying is that these guys are not small and take an activist position, divesting companies such as Rio Tinto for causing serious environmental damage.
NBIM has six strategic focus areas for investment, with their top ethical priorities being Children’s Rights, Climate Change Risk Management and Water Management. Specifically they expect food, agriculture, pulp & paper, pharma, mining, water supply and electricity production companies to manage water scarcity risk. Generally they expect companies to make sure their water management is sustainable and that their governance structure can respond to water risks. You can see the details here.
Mekonnen & Hoekstra 2011 tell us that China, (a country with 19.5% of the world’s population and 7% of the renewable fresh water according to National Geographic) bears 22% of the global industrial water footprint and 26% of the grey water footprint (a volumetric measure of pollution).
Clearly if the world is going to continue to manufacture in China, there will be growing pressure on industrial companies from ethical investors like the NBIM to make sure their supply chain is employing best practice water management in China…which will take an enormous capital investment and really transform the industrial water market.
I see some massive opportunities in the global water industry right now, but who is stepping up to the plate?
Anyone who has been in the industry for a while understands that the water industry is all about process risk.
Everyone from the consumer to the biggest industrial player wants water to “just work”. This means they want to pay for water of a particular quality and have the vendor take risk for the whole process.
Whenever a big industrial conglomerate tries to play in the water space (think GE and Siemens), they find that only the lowest margin, most commoditised equipment can actually be treated like a pure-play product. Everything else is actually a unit process, and has to be provided with a guarantee that it will work. Given that every feed-water is different and highly variable, this means you have to offer an engineering service.
Suddenly the scale-based advantages you get from being a massive industrial based conglomerate is working against you as you try to manage the engineering risk for thousands of customised global projects via an elaborate hierarchy.
For me Veolia Water is the barometer for the industry. To me they had two major advantages. They have water people all the way up the organisational hierarchy who instinctively understand the nature of the water industry. Secondly they have traditionally not needed to impose a traditional management hierarchy because everyone went to the same few Grandes Écoles and understood each other implicitly.
These days Veolia trying to manage project risk by putting thousands of small projects through a lengthy approvals process of the type preferred by the Securities and Investments Commission…and it is not working well.
So come on. Bring your start-up capital, come to us to find you some BD, commercial and process talent…set up a sensible risk management process, then all you have to do is grab some project finance and you are away.
I was fortunate enough to participate in the Water Leaders Forum at the Global Water Summit in Seville, Spain recently.
In the broader context of water utility performance, the question of how to attract high performance individuals to the municipal water sector was raised.
There were some great anecdotes and facts told by people at the round-table session on talent, which I think really capture the essence of the problem….and there is a problem.
One CEO of a North American water supplier mentioned that employee turnover in her organisation was about 2%, making for a hypothetical average tenure of about 50 years.
A senior member of one of the major global engineering consultancies told the story of how the senior executives in his firm were unwilling to give large amounts of responsibility to individuals under about 35 years old, in spite of the fact that they themselves had all taken on a great deal of responsibility in their organisation at a younger age.
Finally a young woman told how she had been promoted very rapidly within one of the major African water utilities until she got to a level where more senior executives would have had to move to make room for her to get a promotion. The organisation was relatively static, so there were no exciting change projects for her to work on, and she decided to leave the water industry. After several years she had recently returned as a consultant.
The fact is that globally the water industry has a rapidly ageing workforce, and the impending simultaneous retirement of 40%+ of the workforce over a period of 5-10 years will cause real problems.
The industry must start handing over real responsibility to its small cohort of under younger professionals. High performers thrive on being thrown in the deep end and being challenged. Given the opportunity they will make real and positive change in their organisations
With increasing use of technology the absolute shrinking of staff numbers may not be a problem, but the management of water requires professionals with real experience. It may feel risky to give younger professionals stretch assignments. However if you don’t empower your next generation of professionals now, then they will not be ready when the current generation of leaders retire…and then you will see the real meaning of risk.
I was excited to see an email in my inbox this morning announcing the launch of the World Resources Institute online water risk map tool.
It has been encouraging to see the increasing profile of water risk over the past few years, particularly in the corporate world, and I thought I would do a listing post with four amazing online resources. Links at the bottom of the post.
- The WRI map, Aqueduct, has a heap of data behind it and quite an amazing interface to allow the easy extraction of meaningful data. A non-technical planning executive in a large multinational firm could plug in the locations of 20 production facilities and get a decent overview of the basin level l water risk profile of those facilities inside an hour, which is quite a staggering achievement.Of course water risk cannot be fully quantified for a specific facility at basin level, but it is a very good start.
- Other great ways to understanding water risk are by following the Circle of Blue, an amazing source of water risk related journalism, which does not just set the bar for journalism related to water, but offers a much higher quality of reporting than you will find in all but a few newspapers or websites.
- China Water Risk is an investment industry sponsored site raising the profile of the critical state of water in China.
- Finally Waterfootprint.org is a great resource for understanding the water impact of your actions, as an individual or a corporation.
World Resources Institute – Aqueduct
Circle of Blue
China Water Risk
My previous post on the exit of Siemens from the water business prompted a lot of interest and a number of comments on Linkedin regarding rising stars.
It is clear that US and European companies that still have much of their cost-base and mind-set in the developed world are increasingly struggling to compete with emerging businesses in asia with international capability and a developing world cost-base. Interestingly Spanish firms, with skilled labour costs that look more similar to China than to the UK seem to lie more in the latter camp than in the former.
You don’t have to look any further than the recent award of the Al Ghuburah Integrated Water & Power project to see the possibilities.
Sumitomo corporation, with deep pockets and a strong appetite for global water projects and supported by a Japanese government mercantilist strategy, led the winning consortium.
They partnered (based on an existing strategic relationship) with Malakoff, a Malaysian contractor with extensive experience in the IWP space to own & operate the plant.
On the design and construct side Sumitomo has pulled in VA Tech Wabag (in which they have a stake) an engineering all-rounder with a cost-base firmly in India along with Cadagua to provide the desalination design engineering expertise.
Of course Asia centred consortiums have been successful in the Middle East for some time, but I suspect the break-out into international markets is not far off.
People had been talking for years about Siemens’ struggle to integrate the US Filter water product portfolio they acquired from Veolia. It seemed that it was always a struggle to integrate water treatment products into what is essentially a big mechanical-electrical firm.
On paper it looks like there should be synergies, but if you can’t find a way to get the products you want to synergise across within a single P&L then from an organisational perspective it is difficult to make it happen. Your water treatment sales guy is never going to try and sell drives unless he (or his manager) has some incentive to do so, and vice versa.
Like GE Water, I believe Siemens also struggled with the idea of taking process risk. I am sure Siemens senior management has a very good idea of the risks involved with automation and control, but I very much doubt they were comfortable with taking whole-of-process risk, which is what you really have to do if you are going to try and derive some scale benefits from holding a range of process equipment.
So Siemens is on their way out of treatment, and I am pretty sure that GE now has water sitting firmly in the cash-cow section of their Boston Matrix…milk the strong technology portfolio they acquired in the most low-risk, low-cost way possible until it becomes commoditised then let it pass slowly away.
So good old Veolia and Suez, what ever you may think of them, remain pretty much the only game in town when it comes to global water process firms. Given the kind of overhead these firms have to carry in Paris, I think that there is a huge opportunity for another player to move into the global water & wastewater process space.
They way to do it though is not to go out and buy technology. Technology is important but secondary. Now is the perfect opportunity to put some money behind a global team of experienced process engineers and specialist sales people and create a new global water process brand. Anyone who is interested give me a call…the talent is there and waiting.
In my previous post I mused on the possibility of governments selling or leasing brownfield infrastructure. Infrastructure Australia, a Federal Government peak body influencing infrastructure policy in Australia, just released a report on this topic.
The report promised to identify assets suitable for sale, but sadly it was devoid of much juicy detail. It did however aggregate the asset base value of all publicly held water infrastructure in Australia, working at an equity value of 1.1x the asset base.
Australia has AUD96 billion dollars worth of water assets, but is carrying 36 billion dollars of debt over those assets, leaving a net balance sheet value of 60 billion dollars.
There is definite interest in offloading some of these assets, and the metropolitan areas of Sydney and Melbourne were singled out as geographical regions where the regulatory structure is already in place to allow it to occur.
You can find the report from Infrastructure Australia here: Infrastructure Australia Report.