When we talk about assets being liquid, we mean quickly accessible. There is no significant delay, cost, or other penalty to withdraw funds.
With sustainable investing there is another form of liquid to look out for – investment in “water”, or rather, lack of water. It’s a theme aligned with United Nations Sustainable Development Goal 6 – “ensure availability and sustainable management of water and sanitation for all.”
UN data shows 25% of the world’s population lack access to drinking water and up to half will live in water-stressed areas by 2025. By 2030, demand will exceed supply by 40%. This presents enormous stability risks; wars are fought over much less! But it also creates opportunities.
The risks are generally underestimated by investors. Despite causing 75% of recent disasters, water-related events were identified as a portfolio risk by just 18% of institutions in 2022. There are few industrial sectors and geographic areas not affected at some point by a water crisis.
It isn’t a crisis with ‘only’ humanitarian casualties. Water is a vital resource and component in the production of almost everything, particularly in agriculture, textiles, mining, and energy industries. Furthermore, it isn’t only poorer countries that lack access to sufficient clean water – the United States has a huge H2O problem.
As a vivid example, Utah’s Great Salt Lake has been drying up due to excessive water use. The lake has lost 73% of its water and 60% of its surface area, as trillions of litres are diverted to supply farms and homes. Within years, the lake’s ecosystems could collapse and millions of people will be exposed to toxic dust contained within the drying lakebed.
Declining lake levels threaten to harm not only human health and the 10 million migratory birds and wildlife it supports. As a result, the extraction of magnesium, lithium, and other critical minerals could be unfeasible within the next two years. Dust from the exposed lakebed could further damage crops, degrade soil, and cause snow to melt more quickly – triggering widespread economic losses for Utah’s agriculture and tourism industries.
Water shortages are just one issue faced by America. The infrastructure is also in a bad way. Some water pipes are a hundred years old; dams are dangerous and lead pipes and pollutants are a concern for politicians and citizens alike.
Funds investing in “water” will do so under one of the following broad categories.
- Water utilities. Regulated companies that provide clean drinking water and/or wastewater management
- Water transportation. Pumps and pipes, as well as companies that improve water delivery
- Water technology. Companies that produce equipment to treat or purify water
- Miscellaneous. Companies that may have little exposure to the water industry but may be considered leaders in water efficiency
Sustainability is about balancing our needs for resources, with the replenish-able availability of resources. Given the pressure on global water supplies, investing in companies that can allow more efficient use of water and minimise waste is highly important. It offers an opportunity to seek growth from businesses whose services are much in demand and also have positive outcomes for society.
A glass half empty for water offers us a glass half full of investment opportunity.
Depending on your objectives and risk appetite, I can show you portfolios which offer exposure to the water theme in line with our aim to invest in positive social and environmental outcomes, as well as a financial return.
*Please note that capital is at risk and these investments are designed for the long term.
Water Infrastructure Investments (allianzgi.com)
‘Last nail in the coffin’: Utah’s Great Salt Lake on verge of collapse | Water | The Guardian
The watershed year for H2O – by Elisabeth Steyn (weekinimpact.com)
Photo by Mick Haupt on Unsplash
