Impax blog

Extreme weather events and their investment implications

26 Feb 2018 - by Bruce Jenkyn-Jones

Scientific consensus is that climate change is “almost certainly” increasing the frequency and intensity of extreme weather events1, and recent news lends weight to this concern.

A catalogue of recent disasters
In 2017, we saw one of the most active hurricane seasons on record, with the US experiencing six severe hurricanes (Harvey, Irma, Jose, Lee, Maria, and Ophelia). It is estimated to be the most costly season ever, causing approximately $300-$475 billion in damages in the US alone2. For reference, the most expensive natural event in US recorded history, 2005’s Hurricane Katrina, caused up to $250 billion in damages3.

This winter, Florida residents saw snowfall for the first time in 30 years as the US East Coast was battered by major storms. On the West Coast, Californians first suffered droughts, then the largest wildfire in the state’s history, followed by catastrophic flooding and mudslides.

Meanwhile, major flooding hit India, Pakistan and Bangladesh, and landslides wreaked havoc in Nepal. On the African continent, Cape Town is facing its worst water shortage in 113 years and may soon run out of drinking water, affecting over 40 million people4.

Investing in adaptation and mitigation solutions
Immediate responses to extreme weather include the use of backup and portable power generation to replace and supplement downed power systems. Companies that help clean up and repair large-scale damage also see an increase in activity. This is not limited to removing fallen trees and buildings. For example, one service that requires specialist knowledge is the identification and removal of hazardous materials.

Longer-term planning around storm resilience typically requires huge investment in water infrastructure. For example, water treatment facilities may require upgrading to address contamination during tidal surges and flood conditions.

In addition, the pipes, pumps, and sensors that constitute the systems that remove, collect and transport water are getting ‘smarter’. The integration of digital technology allows these systems to monitor and control water management processes more efficiently.

A growing investment universe
We have been researching and investing in the broader water universe since 2002, and established a standalone global water strategy in 2009. Over this time, we have seen rapid growth in the investment opportunity with the water investment universe currently numbering almost 300 companies5. Over fifteen years’ experience of investing in this sector gives us the insight to identify the most promising companies providing solutions to the increasing incidents of severe weather events. The rapidly rising demand for their products and services, partly driven by more extreme weather, should lead to their continued strong growth and out-performance versus broader global equity markets.

1Changes in Climate Extremes and their Impacts on the Natural Physical Environment -
2Hurricane season is finally ending -
3The Estimated Costs of Hurricanes Irma and Harvey Are Already Higher Than Katrina -
4South Africa's Western Cape declares drought disaster -
5As of 31 January 2018, Impax Asset Management internal data.