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Water Perspectives: Investment Implications

Synopsis

Read or download the full Thematic Research Highlights Report [pdf].

The complete version of this white paper looks at water issues from both a top-down and a bottom-up perspective. Topics covered include: macro issues (supply-demand imbalance, water rights and pricing), two country level case studies (China and the U.S.), and sector-specific discussions of desalination, bottled water, sustainable agriculture, water metering and efficiency, and ecosystem services.

Background

Against a fixed global supply of freshwater, population has doubled and water use has quintupled over the last century. With the global population expected to increase by a further 2-3 billion by 2050, will society be able to meet human demand for fresh water?

History is littered with examples of societal collapse due to neglect of natural resources such as water. As our ability to harness powerful rivers, tap aquifers, and treat and re-use waste water has increased, many regions have become complacent about water availability. This abundance has underpinned industrialization, 'fuelled' increases in per capita consumption, and has allowed people to live in previously uninhabitable areas. However, as population grows and water demand increases, this complacency will likely be shaken. More than half of the global population lives in countries with falling water tables. Three of the world's largest grain producers—China, India, and the U.S.—face some of the most severe water supply-demand imbalances. While the collapses of previous eras should be avoidable due to technological advances, basic lack of freshwater may constrain economic growth and affect human well-being, even in areas currently regarded as developed and economically strong.

Conclusions

The collision between our civilization and the hydrological system already is visible in certain areas of the world. Challenges related to the availability of clean water will likely become more pressing within the next 15 years—from an investment perspective this is relatively soon and therefore it is worth understanding how these challenges will impact companies and equity markets over time.

On a company level, the dynamics of water availability, price and quality can impact different points in their value chain, and some businesses are more vulnerable than others. To fully assess the water impacts on business, it is helpful to look at both direct and indirect water use along the full value chain. Going forward, there is enormous opportunity for investing in water solutions.

Sample Investment Ideas

  • Industrials Sector: desalination (membranes); water treatment; wastewater management; infrastructure for storage/distribution (reservoirs, aqueducts, bladder transport); engineering/consulting services; pumps, piping and valves; demand-side efficiency (low flush toilets) and water meters
  • Financials Sector: water-related ecosystem service markets (clean water credits, wetland banking); real estate with fresh water assets; project finance for water projects; microfinance for water technology in emerging markets.
  • Consumer Sector: bottled water, water efficient household products; disinfection/filtration/purification of drinking water; efficient irrigation systems and equipment for sustainable agriculture; drought resistant crops; water intensity of supply chain
  • Healthcare Sector: water intensity of operations; treatment for water-related disease; bio-prospecting in rainforests
  • Telecom, Technology & Software Sector: water metering and management; technology for mapping water resources; services for water utilities (such as billing); monitoring and testing equipment; automation systems; GPS for precision irrigation.
map showing water stress regions by watersheds