The looming threat of water scarcity

Water supplies are running low, and fears that reservoirs will run dry are increasing. While water shortages are leaving many with dwindling supplies, there are innovative companies helping to preserve, treat and recycle water.

20 Mar 2020

By Bruno Bertocci, Head of the Global Sustainable Equities team and lead Portfolio Manager; Joe Elegante, Senior Portfolio Manager and Alix Foulonneau, Analyst

As Benjamin Franklin, once put it "When the well is dry, we know the worth of water". These staggering statistics show that there is no way to overstate the water crisis the planet is facing today.

Key highlights

2 billion

people drink water contaminated by feces across the world today1

2 thirds

of the world's population endure severe water scarcity at least one month a year today2

2.4 billion

with no access to sanitation facilities in the world today3

700m

could be displaced by water scarcity around the world by 20304

40%

of India's 1.34bn population will have no access to drinking water by 20306

This will be exacerbated further as rapidly growing urban areas place heavy pressure on neighboring water resources. With every continent now suffering from increasing water scarcity, the impact of climate change, population growth and intensive agriculture, along with over-use, misuse and abuse of water are all beginning to have an impact.

Companies can no longer view water as a free, non-exhaustible resource, and those in water-intensive sectors simply can't ignore water planning in their business risk analysis.

Accessing the opportunities these challenges provide

At UBS Asset Management, we find investment opportunities with innovative companies delivering solutions to the world’s most pressing sustainability challenges.

This includes a global leader in water treatment cleaning and sanitizing solutions which has consistently gained market share in recent years with more than a third of sales originating from emerging markets. It also has customers in nearly 3 million locations in more than 170 countries.

We first invested in this water treatment company in our Long Term Themes strategy in 2016 and it remains a core holding.

Estimates show that the global water market is currently worth more than USD 600bn annually. The biggest category, with 35% of the market, is wastewater treatment (water utilities), and the remaining 65% is water equipment (for water exploration, distribution and treatment).

The company supports their customers in improving the water efficiency of their operations, thanks to digitalization of its solutions.

Our analysis of the company's business projects show that overall operating margins would improve from 15% today to 19% by 2020 driven by additional cost savings programs, leverage and the sale of new higher margin products.

We continue to believe it is an industry leader in developing new effective solutions that will help customers improve operations and create a positive environmental impact to the challenges of tomorrow.

Investment opportunities from water scarcity

  • The global water crisis requires tailored, local water scarcity and quality solutions
  • Short-term measures taken by government to mitigate the water crisis include water supply rationing
  • Long-term measures include water price increases, taxation and revision of water supply licenses
  • Companies with attractive valuation that provide water management solutions are interesting investment opportunities.

UN SDG Goal 6

Ensure availability and sustainable management of water and sanitation for all.

Goal 6 of the United Nations Sustainable Development Goals is aimed at tackling water and sanitation.

Goal 6.3 target: By 2030, improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally

Goal 6.4 target: By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity

It is at the very core of sustainable development and critical to the survival of people and the planet.

This goal not only addresses the issues relating to drinking water, sanitation and hygiene, but also the quality and sustainability of water resources worldwide.

A world leader in water treatment, cleaning and sanitizing solutions

Many companies have corporate water targets, but all too often they don’t know how to translate them into real water reductions. From one of the company's survey in 2017, we know that 82% of companies lack the tools and expertise to achieve tangible results. Repeated in 2019, the survey showed that, although the sense of urgency around water is growing, almost half of companies do not have a clear plan to get from corporate goals to tangible results.

In fact, according to numbers compiled by S&P Trucost, corporate water use is increasing globally. That trend must be reversed, because the U.N. projects that under a business-as-usual scenario, the world will face a 40 percent fresh water deficit by 2030. 

To ensure continued growth in an increasingly water-scarce world – and to help avoid a global water crisis – companies must decrease their water use and build smart, circular water management practices. The Company's water navigator will help them make that happen by bridging the gap between good intentions and effective action.

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