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I confirm that I am accessing this website for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investor acting for their own account).

By accessing the restricted area I confirm my agreement with‚ and understanding of‚ the following terms of use and the legal provisions. If I do not agree to the terms and legal conditions‚ I must not access this website or any pages thereof. I acknowledge that access to the information contained on this website is available to "Qualified Investors" only as defined below. A private individual or legal representative or any other party without this qualification should not enter this website.

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I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

This website has been issued by FIL Fund Management Limited, a Bermuda company licensed to conduct investment business by the Bermuda Monetary Authority. Neither FIL Fund Management Limited, its parent company FIL Limited, nor any of their group companies or affiliates makes or gives any warranty or representation that any information contained on this website is accurate, complete, or fit for any particular purpose.

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Diese Website wurde von FIL Fund Management Limited eingerichtet, einem Unternehmen mit Sitz auf bzw. nach dem Recht der Bermuda-Inseln, das über eine Genehmigung der Bermuda Monetary Authority zur Ausübung von Investmenttätigkeiten verfügt. Weder FIL Fund Management Limited noch sein Mutterunternehmen FIL Limited oder irgendein anderes Konzernunternehmen oder verbundenes Unternehmen übernimmt die Gewähr dafür oder erklärt, dass die Informationen auf dieser Website zutreffend, vollständig oder für jedwede Zwecke geeignet sind.

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Confermo di voler accedere a questo sito web per acquisire informazioni in veste o per conto di un Investitore istituzionale (una società o altro investitore non retail che agisce per proprio conto).

Riconosco che le informazioni contenute in questo sito web non sono dirette né sono destinate alla distribuzione o all’uso da parte di soggetti in qualsiasi giurisdizione in cui la diffusione di tali informazioni relative allinvestimento non è consentita. Riconosco inoltre che le informazioni contenute in questo sito web non sono dirette a soggetti che potrebbero essere definiti "investitori retail" dall'autorità di vigilanza nazionale del paese dal quale si accede al sito stesso. Riconosco che le informazioni o le opinioni contenute in questo sito web non devono essere interpretate come un'offerta di vendita o come la sollecitazione di un'offerta di acquisto di un prodotto o un servizio di investimento, né tali prodotti o servizi di investimento possono essere offerti o venduti a soggetti di giurisdizioni nelle quali tale offerta, sollecitazione, acquisto o vendita sarebbero illegali. Questo sito web contiene giudizi e opinioni espressi da Fidelity, che sono soggetti a modifica e rispetto ai quali non sussiste alcun obbligo di aggiornamento. Nulla di quanto contenuto in questo sito web va considerato come una consulenza di investimento, fiscale, legale o di altra natura. Le informazioni qui riportate sono soggette a modifica senza preavviso.

Questo sito web è pubblicato da FIL Fund Management Limited (una società delle Bermuda autorizzata a svolgere attività d'investimento dalla Bermuda Monetary Authority). Né FIL Fund Management Limited, né la sua società madre FIL Limited, né alcuna delle loro società del gruppo o affiliate fornisce o rilascia alcuna garanzia o dichiarazione che le informazioni contenute in questo sito web siano accurate, complete o adatte a uno scopo particolare.

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Important information

I confirm that I am accessing this website for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investor acting for their own account).

I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

This website has been issued by FIL Fund Management Limited, a Bermuda company licensed to conduct investment business by the Bermuda Monetary Authority. Neither FIL Fund Management Limited, its parent company FIL Limited, nor any of their group companies or affiliates makes or gives any warranty or representation that any information contained on this website is accurate, complete, or fit for any particular purpose.

I acknowledge that neither FIL Fund Management Limited, FIL Limited, nor any of their group companies or affiliates will have any liability for any losses arising directly or indirectly from any information accessed from this website. By accepting this representation I also confirm my agreement to the website Terms and Conditions, which I have read and understood.

Please note that FIL Fund Management Limited is not licensed by the Liechtenstein Financial Market Authority (“FMA”) and is not subject to the supervision of the FMA.

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If the above representation is correct, please click 'I agree' below to continue to the site.

Wichtige Informationen

Hiermit bestätige ich, dass ich diese Website zur Informationsbeschaffung als institutioneller Anleger (ein auf eigene Rechnung handelndes Unternehmen oder ein anderer nicht als Privatanleger geltender Investor) bzw. für einen institutionellen Anleger besuche.

Mir ist bewusst, dass sich die Informationen auf dieser Website nicht an Personen richten bzw. für sie bestimmt sind, in deren Land die Verbreitung solcher anlagebezogenen Informationen nicht erlaubt ist. Mir ist ebenfalls bewusst, dass sich die Informationen auf dieser Website nicht an Adressaten richtet, die von der Aufsichtsbehörde in dem Land, von dem aus die Website besucht wird, möglicherweise als „Privatanleger“ klassifiziert werden. Des Weiteren ist mir bewusst, dass die hier zu findenden Informationen oder Meinungen nicht als Aufforderung zum Kauf oder Verkauf eines Anlageprodukts zu verstehen sind. Es sollen auch keine solchen Anlageprodukte oder Dienstleistungen Personen angeboten oder verkauft werden, in deren Land ein entsprechendes Angebot, eine Aufforderung, ein Erwerb oder Verkauf ungesetzlich wäre. Fidelity äußert auf dieser Website seine eigenen Ansichten und Meinungen, die sich jederzeit ändern können, ohne dass eine Verpflichtung zur Aktualisierung besteht. Kein Inhalt dieser Website ist als Beratung in Bezug auf Geldanlagen, Steuern, rechtliche oder sonstige Aspekte zu verstehen. Die hierin enthaltenen Informationen können sich ohne entsprechende Mitteilung jederzeit ändern.

Diese Website wurde von FIL Fund Management Limited eingerichtet, einem Unternehmen mit Sitz auf bzw. nach dem Recht der Bermuda-Inseln, das über eine Genehmigung der Bermuda Monetary Authority zur Ausübung von Investmenttätigkeiten verfügt. Weder FIL Fund Management Limited noch sein Mutterunternehmen FIL Limited oder irgendein anderes Konzernunternehmen oder verbundenes Unternehmen übernimmt die Gewähr dafür oder erklärt, dass die Informationen auf dieser Website zutreffend, vollständig oder für jedwede Zwecke geeignet sind.

Ich erkenne an, dass weder FIL Fund Management Limited noch FIL Limited oder ein anderes Konzernunternehmen bzw. verbundenes Unternehmen für etwaige Verluste haftet, die direkt oder indirekt aus einer auf dieser Website beschafften Information resultieren. Durch Annahme dieser Erklärung bestätige ich auch mein Einverständnis mit den Nutzungs- und Geschäftsbedingungen dieser Website, die ich gelesen und verstanden habe.

Fidelity International, das Fidelity International Logo und das F-Symbol sind Markenzeichen von FIL Limited, einem nach dem Recht der Bermuda-Inseln eingetragenen Unternehmen.

Bitte beachten Sie, dass die FIL Fund Management Limited von der Finanzmarktaufsicht Liechtenstein weder zugelassen noch beaufsichtigt ist.

Diese Website präsentiert Informationen in englischer und deutscher Sprache. Als professioneller Anleger akzeptiere ich hiermit, Informationen in mehr als einer Sprache zu erhalten.

Wenn die obige Erklärung zutrifft, klicken Sie bitte auf „Ich stimme zu“, um auf die Website zu gelangen.

Photo: Jason Lee / Reuters

A sustainable investor’s view on water scarcity in China

by Bertrand Lecourt, Saurabh Sharma, Marion O'Donnell and Neil Gough Asia Editor

Published 15 April 2019

ESGSustainable InvestingChina

China’s water woes are the result of myriad factors including rapid and sometimes footloose urbanisation and industrialisation. From a sustainable investor’s perspective, they represent significant challenges, but they also present distinct opportunities.

Some of China’s richest and most populous areas - cities like Beijing or Tianjin - are facing enormous risks when it comes to accessing one of the most basic necessities of life: clean water.

China’s supply of renewable fresh water is low, at only about a third of the global average on a per capita basis. Worse still, across wide swathes of the country, mainly in the arid northern provinces, that measure dips to levels that signal acute scarcity. It could be China’s undoing. While China is the world’s most populous country and remains one of the fastest growing major economies, water scarcity could halt or undo so much of this development. Former premier Wen Jiabao, a geologist by training, once said water shortages threatened “the very survival of the Chinese nation”. It’s an issue for China’s neighbours too, as water flow in the rivers of Southeast Asia are diminished by dams China is building upstream.

Source: World Bank, Fidelity International, April 2019

Investing sustainably in sustainability: Water use

China’s water woes are the result of myriad factors including rapid and sometimes footloose urbanisation and industrialisation. From a sustainable investor’s perspective, they represent significant challenges, but they also present distinct opportunities. New policies and regulations are creating liabilities for companies ranging from obvious consumers of water such as crop producers, power plants and brewers as well as less obvious businesses like microchip manufacturers and textile mills. But at the same time, aggressive government spending to improve wastewater management and ensure clean drinking water is stoking massive demand for environmental technology and related services.

The key question for investors is how to access these opportunities. A number of multinational water or environmental services firms have made significant inroads in China, companies like Suez Environment, Veolia Environment or Xylem. And while foreign firms may have technological know-how, it is often local firms that have an edge when it comes to market knowledge and licenses to operate - many foreign companies access China by forming joint ventures. Local players include firms like Beijing Enterprises Water or China Everbright International.

And while companies jostle for position in the highly fragmented and fast-developing market, the sector remains exposed to the usual governance risks of investing in new and emerging markets. Although these companies are providing solutions to the country’s water challenges, investors in China must not forget the importance of corporate governance because good quality businesses begin with good management. Investors in the sector should take a global view toward sustainable investing, but it’s helpful to augment this with careful on-the-ground research, in order to help identify the companies most likely to succeed.

Pollutor pays

The market is massive and growing. The challenge is that China is fighting pollution on several fronts - air pollution is the most visible, but solid waste and soil pollutants are equally large problems.

Estimates range widely, but according to some projections, the domestic market for soil remediation will grow to 685.6 billion renminbi, or over $100 billion, by 2020. Thousands of companies have piled into China’s soil remediation market in recent years.

The stakes have been rising more recently, driven in large part by regulatory developments in China. On January 1, a sweeping new law targeting soil and groundwater pollution took effect, putting greater responsibility on all land users, not just factories, to prevent polluting their premises and to tackle pollution they may have already put in to the environment. Significantly, this law extends to groundwater pollutants.

The law is China’s first comprehensive legislation covering pollution, and while enforcement will be a challenge it introduces specific individual obligations for users or would-be occupants of land. It empowers local authorities to enforce measures with fines for breeches of up 2 million renminbi (around US$300,000) and the threat of administrative detention.

Investing for sustainability

Top-down planning features prominently in China and in the country’s 12th Five-Year Plan, which covered 2011–2015, water security was placed at the top of the agenda. The 13th Five-Year Plan, which runs until 2020, builds on this. Government spending worth hundreds of billions of dollars will see new reservoirs, water diversion projects, irrigation projects, and hydropower plants. Further large-scale investments include wastewater treatment facilities and infrastructure and municipal drinking water.

At the same time, China’s policymakers are targeting conservation among end users. They have promised market-based reforms designed to reduce water use and encourage water recycling and reclamation at the industrial level. But they also include proposals to increase retail tariffs on water and implement tiered pricing for household consumption.

Investment implications: Walking the talk

To make the most of the prevailing trend in China towards water sustainability, investors can, we believe, benefit from applying environmental, social and governance (ESG) factors in their investment process. This is one way for capital allocation to have the most impact on environmental conditions.

As water has grown in prominence as a key input to the production process, it has become a risk factor for industrial companies operating in China. Fidelity recently engaged with a number of investee companies in Asia on the ESG-related risks in their supply chains. We focussed on the clothing retail, textiles and luxury goods sectors, where the multi-layered structure of supply chains can expose companies to reputational, operational and legal or regulatory risks.

Among the environmental factors covered in the engagement was water management and specifically, what companies are doing to limit their impact on water resources. The goal is to benchmark current water conservation and reclamation practices and identify areas where we can work together with companies to deepen their commitments in this area. Companies that are operating in high water-risk areas or in industries where water is a key component of their production process need to have strategic plans to manage and - where possible - to reduce their impact on this scarce resource.

Conclusion

China’s water scarcity challenges are daunting, but they create distinct opportunities when it comes to seeking sustainable investment strategies, mainly for companies providing water treatment solutions. Companies that operate in water-intensive sectors or high water-risk areas will need to actively and carefully manage their water use in order to lower operating expenses, maintain their licenses to operate and emerge as winners in the long run. Adapting to these challenges and seizing the related opportunities requires a proactive and engaged approach. For China, the stakes couldn’t be higher.

What question should we tackle next?

Email your suggestion toeditorial@fil.com

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Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.

In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.

Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.

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