WHY INVEST IN WATER?

WHY INVEST IN WATER?

2.. BASIC WATER FACTS All life depends on and largely consists of water; more than energy, it is the fuel of our existence and of all life on Earth. Less than 3% of the world s water is fresh, and a mere 0.5% of that is available to and used by humans and the rest of nature. 2.5% is locked up in Antarctica, the Arctic and glaciers; the other 97% is seawater. Water, although ubiquitous, is a non-renewable, irreplaceable resource there are no new sources of fresh water to tap. Nine countries possess 60% of the world s available fresh water: U.S., Canada, Brazil, Russia, China, Indonesia, India, Columbia and the Democratic Republic of the Congo. While North America has 8% of the world s population and 15% of the global water supply, China has 21% of the world s population and access to only 7% of the global water supply. 1 LIVING IN WATER-STRESSED AREA 33% NOW 47% 2030 The world s water supply faces large problems from over-population, expansion of agriculture and industry, pollution and climate change. > > Agriculture and industry has polluted much of the world s fresh water through chemical use and discharge. > > Climate change is altering water and weather patterns around the world. > > A third of the world s population live in water stressed areas. > > Over a billion people lack access to water (expected to double in 20 years). > > A billion people drink unsanitary water; three to four million people die each year in developing countries from waterborne disease the single largest cause of illness and death worldwide. 1 DRIVERS FOR THE WATER INDUSTRY Water is becoming an increasingly scarce resource and evolving solutions from water-related businesses will be required to meet demand. Population growth and economic development continue to push water resources beyond natural limits, and demand will only continue to grow current projections anticipate demand will triple over the next 20 years 1. The Agricultural industry is the largest consumer of water, using 70% of the world s fresh water supply and in most cases extremely inefficiently. In developed countries, the Industrial market is the biggest consumer, and its reach is quickly expanding in developing nations, many of which are already water stressed 1. 70% WATER USE 20% 10% As fresh water becomes scarcer, major consumers will be forced to upgrade their water systems or face constrained profitability and economic growth. IRRIGATED INDUSTRIAL DOMESTIC AGRICULTURE & ENERGY In the U.S. and other industrialized countries, 15-20% of water is lost due to leaks in the pipe network. In developing countries, the figure rises to 20-40%, due to both leaks and illegal withdrawals 1. With ever higher demands for purified water and an estimated $1 trillion required to repair, upgrade and build infrastructure worldwide, investors can pinpoint a variety of opportunities. 1 World Water Assessment Programme. 2009. The United Nations World Water Development Report 3: Water in a Changing World. Paris: UNESCO, and London: Earthscan.

3.. THE WATER MARKET IS PRIMED FOR GROWTH Today s global water market is immense and will only get larger. The market consists of all companies in the water and wastewater value chain: water treatment, delivery, infrastructure and monitoring. Most estimate its size in the U.S. to be $100 billion and $500 billion worldwide. The global water capex is expected to grow at a compounded annual rate of approximately 6.2% from 2010-2016, according to GWI Research. Water has long been considered a safe, long term investment in companies that have strong balance sheets. Over the past few decades, water companies have been characterized by their slow, steady growth. A combination of supply-and demandside measures is needed to address the acute water challenges in the coming 50 years. UN World Water Development Report More recently, their balance sheets remain healthy overall, but the industry faces near-term headwinds because of on-going global economic concerns. While challenging government financial conditions and industry volatility present short-term issues, longer-term drivers remain bullish for the industry. WATER AND WASTEWATER CAPEX FORECAST BY SELECTED REGION 60 Total Capex $ billion 50 40 30 W. Europe N. America China 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 THE WATER INVESTMENT LANDSCAPE Current trends in the water industry are: > > Tighter regulations, such as zero discharge and water re-use policies. > > Advanced filtration techniques that can filter more complex contaminants and replace chemicals for water treatment. > > Measuring water consumption to increase efficiency. > > Higher water prices and mechanisms such as trading water rights and water pollution rights. > > Continued industry consolidation and privatization, resulting in dominance of a few conglomerates.

4.. Investment Sectors The water industry consists of several major segments: utilities, treatment technologies, infrastructure, efficiency and monitoring. Water Utilities Water utilities represent 40%-50% of the $100 billion U.S. water market. Most are small municipal systems that serve fewer than 3,000 people. Larger, publicly-traded water utilities have long been core investments because of their stability and the fact that they enjoy a virtual monopoly in the regions they operate. Their regularly increasing, high dividends level out stock fluctuations and play a large role in total returns. Although utilities comprise only 10% of the world s publicly traded water stocks, their reach ultimately extends to all companies in the water value chain because utilities are their most reliable customers. Even in hard times, utilities firms have to spend on the goods and services necessary to maintain uninterrupted and regulatory-compliant service. Water Treatment This segment includes companies that disinfect drinking water, treat wastewater and desalinate sea water. Because of the health and security risks associated with traditionally-used chlorine treatments, U.S. water utilities are transitioning to more advanced non-chemical technologies, such as ultraviolet light, ozone and activated carbon. Companies that install these technologies have higher margins and recurring revenues from membrane replacement. UV disinfection, for example, is a cost-effective alternative to chlorine, which has a $500 million world market, growing 15-20% a year. Although wastewater treatment is standard practice in the U.S., only 5% of the world s wastewater is treated, leaving significant room for growth. Industrialized countries are shifting from treating water to re-using it for agricultural irrigation and industrial use. Desalination is important in water scarce areas particularly in the Middle East, a financially secure region that can afford the technology to make drinking water from seawater and brackish water, and for wastewater treatment. Although the 10 largest plants are in the Middle East, there are roughly 17,500 desalination plants in 120 countries serving over 150 million people. Desalination is forecast to be a $70 billion market by 2020, according to GWI Research.

5.. Infrastructure One of the biggest investments driving the water industry is in maintaining and upgrading infrastructure the pipes, pumps, valves and tanks that make water systems work. The segment is growing 10% a year in industrialized countries and 10-15% a year in developing countries, according to Canaccord Genuity. Pumps are used widely in the water industry in applications such as desalination and wastewater treatment ($50 billion market by 2015), and where there are pumps, there are valves ($52 billion market). New, important technologies detect damage before a pipe leaks and repair pipes, saving valuable water and alleviating the need for complete replacements. Water Efficiency Meters can save an estimated 15% of water by giving users feedback on how much water they are using. They are an increasingly important tool for homeowners and industries alike for conserving water, and also help utilities locate leaks in the infrastructure before they turn into expensive problems. Utilities are quickly replacing standard water meters on customers homes and businesses to access this information. Modern irrigation technologies, such as micro and drip irrigation use 30-70% less water, minimize soil salination, and boost crop yields by 20-90%. Less than 5% of China s irrigated land employs this modern technology. Monitoring Testing and monitoring water quality is important for all segments of the water industry. The ability to pinpoint abnormalities in the system, chemicals that need to be removed from discrete locations, or finding a leak before it implodes, enables targeted cost-effective solutions. Random testing that can identify biological and chemical agents in the water system is now crucial for homeland security. The trend toward water re-use will also lead to demand for water-testing. In the U.S., utilities are required to test for 93 known contaminants, nowhere near the number of chemicals in the water system. The trend is toward regulating a much longer list of chemicals, especially in Europe. China is also beginning to adopt a monitoring regulatory system. CONCLUSION Although the earth s changing climate will make water issues much more challenging, Industry and Agriculture are becoming more efficient with advancing technologies. However, while awareness of water issues is increasing, the world still faces large obstacles in preserving, protecting and expanding availability of this natural resource.

6.. HOW TO TRACK The NASDAQ OMX Green Economy Index family is broken up into 22 different sector and subsectors. The water-focused benchmark, NASDAQ OMX Water Index (GRNWATER), consists of 53 companies with a total market capitalization over $100 billion. The components fall into four major subsectors Basic Materials, Health Care, Industrials and Utilities based on ICB classification. Index Overview The NASDAQ OMX Water Indexes are sectors within the overarching NASDAQ OMX Green Economy Index and designed to provide investors the ability to track the performance of the companies engaged in the water segment based on geographic region through a rules based and transparent methodology. The companies which are classified as water are then quantitatively screened to ensure underlying liquidity in the development of the two tradable water indexes. The NASDAQ OMX Water Index (GRNWATER) is the parent index to the Global and U.S.-listed tradable versions. Global The NASDAQ OMX Global Water Index (GRNWATERL) contains globally listed securities which meet all requirements. The index follows a modified liquidity capitalization which weights components by three month average daily dollar trading volume. In addition, countries are capped at 10 components and 40% of total index weight. U.S. The NASDAQ US Water Index (GRNWATUSL) contains U.S.-listed securities which meet all index eligibity requirements. The index follows a modified liquidity capitalization which weights components by three month average daily dollar trading volume. Please visit www.nasdaqomx.com/indexes for additional information. DISCLAIMER: NASDAQ, NASDAQ OMX, and NASDAQ OMX Green Economy Index are registered trademarks of The NASDAQ OMX Group, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither The NASDAQ OMX Group, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding NASDAQ-listed companies are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED Copyright 2012, The NASDAQ OMX Group, Inc. All rights reserved. Q12-0306. 02-12