Thematic investing Saving our planet one drop at a time

How you can invest to help make sure everyone has water

by Brennan Azevedo 12 Jul 2017

A larger population is the direct cause of increasing water demand. (Keystone)

In a CIO WM Research paper, CIO analyst Alexander Stiehler describes the vast problem of water scarcity and how meaningful investments can help save our planet.

A larger population is the direct cause of a larger water demand. As world population rises, strain is being placed on the planet's limited natural resources which in turn, hurt social and economic prosperity, according to Stiehler.

The UN estimates that by 2050 over nearly 10 billion people will inhabit the earth, posing greater threat to our water resources.

According to Stiehler, water scarcity poses a threat to approximately two-thirds of the world's population.

Stiehler views food production as the indirect effect of population volume. Agriculture accounts for 70% of global fresh water demand and production will only increase as caloric demand rises.

Urbanization is also highlighted as a threat to water. The UN predicts 70% of the global population living in cities by 2050.

"Water price will rise and continue to rise, since demand for the resource is inelastic and water scarcity is an increasing risk factor for several countries, sectors and many companies," writes Steihler.

The trend towards urbanization creates major challenges, but also investment opportunities. Steihler concludes, “if the world can harness its limited water resources, the benefits to mankind will be enormous and translate into a convincing investment case.”

In fact, the water market is estimated to be worth USD 600bn annually. Water utilities and industrials, the two main sectors of the market, should benefit from rising water demand.

"With demand for water expected to significantly overshoot supply by 2030, investing in water has become a particularly attractive solution for impact investors," Stiehler highlights four investment avenues:

  1. Investing in water infrastructure and affordable water purification – low income populations account for USD 5trn in global spending every year, and providing access to affordable drinking water has proved to be an unmet market opportunity.
  2. Water sharing partnerships – can help ease water scarcity problems by conserving and restoring water ecosystems. WSIP's use investor capital to earn water rights, which is leased to the market and brought back to the environment.
  3. Agriculture – investing in innovative irrigation technologies will reduce inefficient water usage which will ultimately improve food security.
  4. Water recycling programs – investments have proven critical in preserving groundwater resources, particularly in China, India and Brazil.

Ultimately, meaningful contributions and investments to solving the global water crisis have the potential for significant financial returns.

Main contributor: Brendan Squitieri