Posted by Peter Yolles, 3 minute read
How Much Regulatory Risk is Too Much?
I initially became interested in working in water because who gets how much water and why was fascinating. Newspaper headlines incessantly covered the stories about farms, cities and environmental advocates who passionately advocated for their perspective in the public sphere. At the time, the way of life in California seemed to be on the line: Would there be food on the table? Were salmon going extinct? Would water flow out of the tap? It was a fascinating display of using all the levers to pursue their aims through markets, the courts, administrative law, appealing to the public good, and sheer persuasion.
Today, as an investor, the political and policy questions around governmental intervention in water are less of a political curiosity and more about determining the risks and opportunities for innovative companies seeking to enter a new market. Some of these questions include:
Will water quality regulations drive faster adoption of new detection, filtration, or destruction tools?
Will federal or state government funding be available, to whom and at what pace?
How quickly will groundwater levels be regulated through fines or limitations?
Echo River is placing bets on the most innovative companies that we think will have the biggest impact and provide the biggest returns over the next 10 years. My bias is to focus on companies solving customer problems and providing a simple and compelling economic return. These often look like an increase in revenue or an increase in energy or chemicals savings.
Sometimes, these calculations become dependent on actions that the government is taking, or will take, in the future. For example, Echo River invested in Aclarity to destroy “forever chemicals” like PFAS and PFOA, which got a boost when the federal EPA issued its final rule regulating the maximum contaminant level in drinking water in Spring 2024. Additional regulations enable investigation and cleanup from leaks and spills. These efforts are intended to prevent cancer before it starts under the Biden Cancer Moonshot. The benefits of monitoring and removing these chemicals from the environment and drinking water are enormous.
As an investor, these regulations can provide a tailwind and additional rationale for investing in companies that detect or destroy forever chemicals like Aclarity.
Who would be against these common-sense rules that address the scourge of cancer that touches practically every American family?
Well, it turns out everyone from associations of drinking water utilities themselves (AWWA and AMWA) to the majority of the Supreme Court of the United States (SCOTUS) disagrees with preventing cancer by regulating PFAS. While attending the AWWA annual conference and exposition in June, I learned that AWWA and AMWA sued the U.S. EPA to prevent the new PFAS regulations from implementation arguing against the scientific methods used by the EPA. SCOTUS went even further to undermine the standing that EPA and other agencies use to interpret and implement laws passed by Congress (Loper Bright Enterprises v Raimondo). In its decision last week, the majority repealed the Chevron deference, in reference to a 40-year-old doctrine of deferring to federal agencies when rules they make are reasonable and the enabling law was ambiguous.
What most investors want is certainty about the rules. What impact investors in water want are clear rules that strengthen protections of public health and environmental quality. SCOTUS’s majority opinion introduced massive uncertainty not only about future laws, but about the rules that have applied for the last 40 years, which may be undone now. The very premise of the federal administrative and rule-making process is undermined.
At this very moment, I personally know too many friends and family fighting cancer. With this change, I fear for our public health and well-being. I know one thing for now: The little I relied on federal agencies to spur innovation has declined even further. As an impact investor and B-Corporation, the undermining of regulations for the public good moves in the direction of economics as if people were rational decision-makers. But we aren’t only rational. We care about our loved ones, we are part of nature, and we operate in a society of people dependent on pure water, healthy food, and clean air.
I know that Echo River will continue investing for these positive outcomes. But it’s going to be a lot harder when our federal government doesn’t share the same mission.
New Investment in Active Membranes
Active Membranes is set to revolutionize seawater and brackish water desalination by transforming the membranes used for reverse osmosis treatment. Traditional reverse osmosis uses "passive" membranes. Active Membranes uses a proprietary coating that electrifies and digitizes the membrane surface. This coating reduces biofouling, extends the life of the membrane, and enables performance monitoring. Echo River is thrilled to support CEO Arian Edalat and the team in advancing desalination and other decentralized water treatment solutions globally. Read more in their press release here.
Portfolio News
Voda announced two major partnerships with Itron and AQS by Aliaxis. These partnerships aim to accelerate the deployment of Voda’s artificial intelligence analytics. Aliaxis will be promoting Voda’s non-revenue water identification capabilities. Itron is marketing Voda’s AI water pipe failure prediction.
Epic Cleantec is thrilled to have partnered with Salesforce on the ongoing operation of their groundbreaking blackwater reuse system within the iconic Salesforce Tower, a globally recognized landmark in the heart of San Francisco! Epic’s reuse system will save recycled 7.8 million gallons of water annually, reducing water consumption by 75%.
Kairospace and Uravu Labs will be participating in R3i Planet43 Hydro accelerator program, which is sponsored by PureTerra Ventures, Hatcher+, Striders and others. These two are among 12 companies selected from among 1,500 applicants.
Verdi Ag announced a new capability for monitoring groundwater use on wells through retrofit. Verdi provides automated monitoring and reporting for growers and is in the process of being listed on the California Water Board's list of monitoring vendors. Read more here.
New Team Members
Echo River is thrilled to introduce our newest MBA summer associate, Elizabeth Farlow, who joined the team in June from Yale School of Management and brings with her 5+ years of experience in consulting and a strong entrepreneurial track record in the healthcare space. Elizabeth is spearheading the development of our inaugural Impact Report to quantify the progress made by our portfolio companies, in addition to diligencing potential investments and expanding our focus on tech solutions that drive significant public health benefits. As she explores full-time opportunities in impact investing post-graduation (May 2025), please reach out to her if you have any guidance or support that you could provide!
Welcome aboard, Elizabeth!
Industry News
Brazil thought it was safe from natural disasters. Then came the flood. “The future of extreme climate events has arrived,” scientists warn (WSJ).
Hello Summer Olympics! Goodbye, Winter Olympics? By 2050, The International Olympic Committee says only around 10-12 countries will be able to host the Winter Olympics due to lack of snow and ice (Olympics.com)
Water quality in the Seine River, which will host swimming and triathlon events, is still unsafe. “The latest tests, completed last week and released by the Paris mayor's office, showed levels of the E.Coli bacteria – an indicator of faecal matter – are far above the upper limits imposed by sports federations. On June 18, the level of E.Coli was 10 times acceptable levels and at no point did it fall below the upper limit of 1,000 colony-forming units per 100 millilitres (cfu/ml) used by the World Triathlon Federation.”
Photo Credit: Washington Post/Michel Euler/AP
Peter Yolles
General Partner
+1.415.203.0432
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