Global warming and population growth are threatening the world's freshwater supplies. Governments, organizations and businesses are trying to tackle water scarcity as part of the United Nations 2030 Agenda for Sustainable Development, but 2.2 billion people globally 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.
The world water crisis
Nearly three-quarters of the Earth is water, but just three percent of that is freshwater. Of that three, only one percent 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 percent of the world's population will live in water-stressed areas, according to research from the Water Footprint Network.
Juan Aronna, head of Investment Solutions and Products at RBC Wealth Management, covering Asia and Europe, notes population growth and urbanization are two main factors behind the increasing demand for water.
According to data from the United Nations, just 29 percent of the world's population lived in cities back in the 1950s. By 2050, 70 percent of the population is expected to be living in urban areas. This will increase demand on both aging 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 percent of the global freshwater supply with livestock being the most water-demanding, according to World Bank data.
In the U.S. specifically, there's a water main break every two minutes resulting in a loss of around six billion gallons of treated water per day, according to the American Society of Civil Engineers.
“This creates an opportunity for investors in new technology—as well as in municipal bonds—that can help fund improvements in these sectors,” says Kent McClanahan, vice president of responsible investing at RBC Wealth Management-U.S.
Investing in more than new technology
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.
Stephen Metcalf, head of sustainable investing at RBC Wealth Management in London, says there are four main areas of focus when it comes to investing in water management: chemicals and equipment, construction and materials as well as utilities and quality and analytics.
Metcalf notes that investing in a broader water theme brings diversification to companies with different investment characteristics.
The future of water investing
For many, investing in portfolios that create impact is a way to concurrently invest wealth as well as contribute to a better future. An investment strategy that employs environmental, social and governance (ESG) factors is on the rise. “ESG is becoming very prominent in Asia,” Aronna notes. He says an increasing number of investors are more aware of their investments and are quick to react.
Aronna notes that some who are in close proximity to areas or individuals experiencing the negative effects of the freshwater shortage may already be looking to invest in a water portfolio. He points out, “This is a megatrend that is here to stay for good.”
“Everything is interlinked. Climate change affects weather patterns, which in turn affects water. It's a continuous cycle that the world has to tackle,” says Aronna.
Today, there is more potential for technology to solve these issues rather than create them. “SusTech” is a term that integrates sustainability and technology, bringing both worlds together to create value for companies, customers and society.
Aronna points out that water has a significant role within SusTech as it relates to how water is consumed and managed.
Metcalf says there's no shortage of companies that are working 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.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.