Fresh water is an increasingly scarce commodity in the modern world but there are opportunities for the astute and socially-motivated investor around water-related solutions
Global warming and population growth are threatening the world’s freshwater supplies. Governments, organisations and businesses are trying to tackle water scarcity as part of the United Nations 2030 Agenda for Sustainable Development, but 2.2 billion people still lack access to safely managed drinking water.
The rising demand for water efficiency and management solutions opens up an array of investment opportunities in new technologies, infrastructure and innovation.
The water market, which is expected to reach US$914.9 billion by 2023, could provide an opportunity to grow wealth, while also investing in companies that seek to create a better tomorrow.
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Nearly three-quarters of the Earth is water but just 3% of that is freshwater. Of that three, only 1% is accessible to nearly seven billion people.
Once we consider the effects of pollution, how much water is wasted and how much is used for food supply, it’s no surprise the demand for fresh water outweighs the supply.
To put this into perspective, by 2050, 52% of the world’s population will live in water-stressed areas, according to research from the Water Footprint Network.
Population growth and urbanisation are two main factors behind the increasing demand for water. According to data from the United Nations, just 29% of the world’s population lived in cities back in the 1950s. By 2050, 70% of the population is expected to be living in urban areas.
AGEING INFRASTRUCTURE
This will increase demand on both ageing infrastructure and food production – two things that use considerable amounts of water. Old infrastructure contributes to water loss through leaky pipes and inefficiencies in the water supply chain.
Agriculture is also responsible for using 70% of the global freshwater supply with livestock being the most water-demanding.
When it comes to investing in water, there’s more to it than being on top of the latest tech device that can pinpoint leaks in old water pipes or a plant that attempts to make ocean water fit for human consumption.
There are four main areas of focus when it comes to investing in water management: chemicals and equipment, construction and materials, utilities and quality and analytics.
INVESTMENT CHARACTERISTICS
Investing in a broader water theme brings diversification to companies with different investment characteristics.
For many, investing in portfolios that create impact is a way to concurrently invest wealth and contribute to a better future. Investment strategies that employ environmental, social and governance (ESG) factors are on the rise.
An increasing number of investors are more aware of the impact of their investments and may already be looking to invest in a water portfolio, especially those experiencing the negative effects of the freshwater shortage in their region.
INTEGRATING SUSTAINABILITY
Today, there is more potential for technology to solve these issues rather than create them. At RBC, we refer to ‘SusTech’ as a term that integrates sustainability and technology, bringing both worlds together to create value for companies, customers and society.
Water has a significant role within SusTech as it relates to how water is consumed and managed. There’s no shortage of companies that are working with technology to fill a demand – whether it be better water filtration systems, engineering water-efficient buildings or searching for a more energy-efficient way to desalinate ocean water.
Everything is interlinked. Climate change affects weather patterns, which in turn affects water. It’s a continuous cycle that the world has to tackle. This is a megatrend that is here to stay.
- Stephen Metcalf is head of sustainable investing at RBC Wealth Management
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