In this article, Stephen Metcalf, head of sustainable development at RBC Wealth Management, considers how fresh water scarcity is an increasing issue, and the opportunities that solutions combatting it could present.
Global warming and population growth are threatening the world's freshwater supplies. Governments, organisations and businesses are trying to tackle water scarcity as part of the United Nations 2030 Agenda for Sustainable Development, but 2.2 billion people 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 $914.9bn by 2023, could provide an opportunity to grow wealth, while also investing in companies that seek to create a better tomorrow.
Expected valuation of the water market by 2023
The world water crisis
Nearly three-quarters of the Earth is water, but just 3% of that is freshwater. Of that 3%, only 1% 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% of the world's population will live in water-stressed areas, according to research from the Water Footprint Network.
of the world's population will live in water-stressed areas by 2050
Population growth and urbanisation are two main factors behind the increasing demand for water.
According to data from the United Nations, just 29% of the world's population lived in cities back in the 1950s. By 2050, 70% 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% of the global freshwater supply with livestock being the most water-demanding.
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.
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. 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. Investment strategies that employ environmental, social and governance factors are on the rise. An increasing number of investors are more aware of the impact of their investments and may already be looking to invest in a water portfolio, especially those experiencing the negative effects of the freshwater shortage in their region.
Today, there is more potential for technology to solve these issues than create them. RBC Wealth Management refers to sustech as a term that integrates sustainability and technology, bringing both worlds together to create value for companies, customers and society.
Water has a significant role within sustech as it relates to how water is consumed and managed. There's no shortage of companies that are working with technology 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.
Everything is interlinked. Climate change affects weather patterns, which in turn affects water. It's a continuous cycle that the world has to tackle. This is a megatrend that is here to stay.
This article was written and published by RBC Wealth Management. The original article, with footnotes, can be found on the firm’s research and insights page, here.
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