The world’s water supply has fallen by more than 50% over the past 60 years, yet demand is set to grow by up to 30% by 2050. Addressing this challenge will require significant investments in global water infrastructure as well as better water management practices by companies across the economic spectrum.
Environmental issues present some of the most complex problems humanity is facing. Climate change, biodiversity loss and ocean acidification, for example, are increasingly pushing against planetary boundaries with eco-systemic, economic and social implications. Global companies are both part of the problem and of the solution. As investors and stewards of our clients’ capital, we believe we have an important responsibility to understand these systemic risks, to engage with companies on how to address them, and to take advantage of opportunities to invest in companies that provide solutions.
The global water challenge and its financial implications
Water scarcity is one of the most urgent environmental and social issues facing us today. More than 750 million people lack access to clean drinking water across the globe and 1.8 billion have no access to basic sanitation, costing USD 260 billion annually, according to the OECD. This pressure is only set to increase.
Water supply has fallen 56% per capita since 1962, with 57% of aquifers having passed their ‘tipping points’ (Food and Agriculture Organisation, FAO) and 36 countries having extremely high levels of baseline water stress. Some 3.6 billion people spend at least one month of the year living in severe water stress, according to the World Health Organisation (WHO), a number that is expected to increase to 5.7 billion by 2050. Amplifying this pressure, water demand is set to grow 20-30% by 2050 driven by population growth, urbanisation, and industrialisation. Demand for water in urban areas is expected to outstrip supply in 27% of the 500 largest cities by 2050. Regional imbalances mean that 58% of freshwater globally is concentrated in 10 countries. Asia, for example, accounts for 60% of the world’s population but holds only 36% of its freshwater supplies.
Poor water governance greatly exacerbates the problem. While certain countries have access to a sufficient clean water supply, existing water infrastructure in select countries is degrading and inefficient. In the US, deteriorating pipe systems, theft or inaccurate meters result in approximately one out of every six gallons of treated water being lost before reaching the end customer. This ‘non-revenue’ water is a major financial challenge for utilities globally, often representing anything from 10% to 60% or more of net water produced. In addition, 80% of wastewater globally goes untreated, degrading the available supply. An estimated 300-400 megatonnes of waste are discharged by industry alone annually.
This poses serious burdens on water quality. One of the most prevalent water quality challenges is nutrient loading by nitrates and phosphates that are released through agricultural activity. In Europe, 38% of water bodies are under significant pressure from agricultural pollution whilst 15% of monitored groundwater stations report nitrate levels above WHO standards (FAO, UN). Potable water quality, even in developed markets, remains an issue. Alarmingly, according to McKinsey, 10 million American households are without access to safe drinking water.