Water Scarcity – Investing to Impact the Future of H2O


April 23, 2021 By Andrew Brenner, edited by Julia Wilkinson and Kevin Webb

Access to water often takes a back seat to climate change in discussions about sustainability, but given that we cannot live without access to fresh, clean water, there is no topic more immediately important.  According to the World Health Organization’s (WHO) most recent study on the topic, 785 million people globally do not have access to safe water, and two billion do not have access to adequate sanitation.  Every year, 3.575 million people die from water-related diseases; more than half of them are children.  This water scarcity also has a disproportionate impact on women and girls; females globally are estimated to spend a total of 200 million hours every day hauling water.  In rural Africa, the average woman walks 6 kilometers every day to haul 40 pounds of water. Unfortunately, access to clean water is not the only issue we face going forward.  Water scarcity is projected to impact 1 in 4 people worldwide by 2050, and many believe this estimate to be optimistic.  Given current global population growth trends and the expansion of the middle class, stress on freshwater supply will increase greatly in the next 30 years. Current research finds that 70% of freshwater consumption globally is used in agriculture, and it is forecast that we will need to increase agricultural output by anywhere from 50% to 100% in the next three decades to keep up with demand.  Freshwater consumption in energy production varies by region and thermoelectric source, but roughly 15% of global water withdrawals are used in the energy creation process – whether it be in natural gas extraction, cooling nuclear towers, cleaning of coal plants, or in producing the input for biomass fuels.  Some of this water is returned to the source, but at temperatures elevated by as much as 18 degrees Fahrenheit, disrupting and potentially harming ecosystems.  Similar to agriculture, it’s estimated we may need to double global energy production by 2050.


The downstream effects of these issues are widespread, and impact many of the SDGs. While SDG 6 – Ensure availability and sustainable management of water and sanitation for all is the most obvious, water concerns will also directly impact SDGs 1-5, 8, 10, and 11.  Women who spend hours a day hauling water are unable to attend school or find work, exacerbating gender inequality.  Water shortages will make it impossible to feed all of the world’s people, and insufficient water sanitation is a considerable obstacle to developing nations reaching good health and well-being.  The World Bank reports that water scarcity, exacerbated by climate change, could cost regions such as the Middle East and the Sahel up to 6% of GDP by 2050.  In short, without reducing water usage and improving access and sanitation, we stand no chance of achieving the majority of the SDGs.


While all of this may sound depressing, there is still much reason for optimism.  As developed nations accelerate the move away from traditional energy sources such as oil and coal to less water-intensive sources like wind, solar, and even natural gas, freshwater withdrawals by the energy sector should also rapidly decline.  Agricultural yields per hectare in the most common crops have at least doubled in the last 50 years, while irrigation withdrawals have declined by almost 20%.  Continued investment into agricultural innovation and growth of the cultured meat industry can help to continue these trends.  Desalination was long considered too expensive to be a viable source of water, yet from 1960-2010, the cost for Multi-Stage Flash Distillation (MSF) to desalinate water has decreased approximately by a factor of 10, and prices continue to decline. Startups like Zero Mass Water have exciting technologies that promise to create clean drinking water from water vapor in the air and deliver it directly to your home using solar power.


The UN considers water to be a multi-impact investment because it affects the microclimate, food supply, industrial chain, health, productivity, and the overall environment.  A 2012 WHO study found that the global economic return on sanitation spending is $5.50 per US dollar of investment.  A 2020 study by the World Resources Institute found that for 75 countries, representing half the global population, achieving sustainable water management is well within reach, requiring less than 2% of GDP.  In the US it’s even less, 0.78% of GDP.  Even at those levels, public funding alone will not meet the requirements, and the private sector will need to participate. Investment opportunities regarding water and sanitation have increased in recent years, as more managers realize the severity of the water challenges we face. Matt Damon drew eyes to water sustainability with the launch of Water Equity in 2017; to date, their funds have made 30 investments in 3 countries and given 1.8M people access to safe water or sanitation. Even traditional investment managers have become involved; last year, Fidelity created a Water Sustainability Fund (FLOWX), which as of March 31, 2021, has over $40M in net assets.  Net-zero water commitments have been made by Fortune 500 companies, with many reporting commitments to decrease water across their supply chains.  Blue bonds are being issued with pay for success tied to reductions in ocean plastics and marine conservation.  A growing number of impact-driven VC and PE managers are investing in technology and software companies solving some of the many systemic issues that lead to clean water and sanitation for all.


As a result of the private and public market interest in solving this complex problem, it has become easier to build a diversified portfolio of investments that improve outcomes for clean water across the SDGs which also yield market-rate financial returns.


Andrew Brenner has spent nearly two decades in the financial services industry, primarily in market data, covering the Americas and Asia.  He has extensive experience in product management, sales, and relationship management, spending the majority of his career working with investment managers. With a lifelong passion for conservation and the environment, Andrew is changing course to focus on sustainable investing and is eager to support Julia and her vision for imvest. Andrew holds a BA from the University at Albany and is currently completing his Master’s degree in Natural Resources at Virginia Tech.


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