Not a surprise for the attentive readers as I dropped hints here and there, but in case you did miss it, I'll proclaim it in big bold letters: I and my wife are expecting a little one next year!
Last Updated on December 25, 2020 by Mr. FightToFIRE
We use it every day for a wide variety of purposes. It’s used for drinking, washing, rinsing, showering, etc. A lot of it is consumed for food and other goods, some of which require it in vast quantities. In short, we cannot do without it. I’m talking about water of course. But should you invest in it?
The most trendy raw material bar none of the 21st century. I talked about investing in specific trackers when covering 5 thematic funds for the future. I now want to go deeper into my top pick: water.
Not only private households, but above all agriculture and industry depend on having access to clean (drinking) water. However, clean water isn’t guaranteed around the globe.
Why don’t we have a closer look at this scarcity and, based on that, see which areas of water management are under strong development?
Based on that we can figure out where it is best to invest in water. Besides promising stocks, the focus is on some of the best water ETFs and global investment funds for water and how to invest in water.
Water: a scarce commodity
Water is vital. We cannot imagine life without it. After all, when we turn on the tap in the western world, clean drinking water comes out. This simple fact makes availability (and quality) of water critical.
In Belgium, we have free access to potable water, but we are also increasingly feeling the effect of periods of extreme drought. On our planet, there is only a limited amount of freshwater: about 2.5% of the total water surface. The rapidly growing population, the economic catch-up of emerging countries, and global warming create additional challenges that contribute to water scarcity.
According to the UN World Water Report, over 2.2 billion people worldwide don’t have permanent access to clean water. A third of them (750 million) do not even have a basic drinking water supply. And this number is exploding. Climate change and all its consequences. The human side and its quest for economic growth & prosperity and an ever-increasing world population are just a few reasons these figures will at least double by 2050. The UN estimate that around 5 billion people will then live in arid regions and face water scarcity problems.
Below is a visual representation of the consumption of water and water scarcity.
While (fresh) water itself might become scarce in the future, opportunities to invest in the blue gold have been around for over 15 years.
Why is water becoming increasingly scarce?
Climate change and the resulting reduced rainfall or changing rainfall patterns, drought, and increased evaporation are the major reasons. However, besides the climate-related causes of water scarcity, the human factor is perhaps the largest one.
The largest water consumer is the agricultural sector (incl. livestock). It accounts for around 70% of global water consumption. The biggest problem within agriculture is that a large part of the water is lost after use and is not collected for recycling.
Inefficient irrigation methods, inadequate technical equipment, and a lack of awareness of this global problem in some places mean that farmers waste enormous amounts of water or are using it inefficiently. In contrast to the climate-related causes of water shortages, but, these are comparatively easy to remedy by investing in water technology and know-how.
Household and industry usages keep rising
In addition, water is also used for industrial applications and households. Today, we see that many companies are looking for more efficient ways to manage water. In principle, there are already many technological possibilities, but the cost price is still a barrier for many companies.
Technological evolutions are making it increasingly cheaper. We see that more and more companies are taking steps in the right direction. This is due on the one hand to the increasing social importance and on the other hand to the ever-stricter standards for industrial and drinking water. So companies are obliged to evolve along with it.
It is not only in peripheral regions of the world that the scarce raw material water is wasted. Even well-developed economies such as the USA or Great Britain waste vast amounts of unused water. In England and Wales, for example, around 20% of their drinking water consumed seeps into the ground through dilapidated pipes.
In the USA, according to the American Society of Civil Engineers, as much as 40% of water pipes are in very poor condition. Many countries, including some in Europe, are failing to invest in water, for example in building modern pipelines and infrastructure.
Growing awareness of a global problem
Water is becoming scarcer every day. under-investment by states intensified these changes further pushed by a more prosperous lifestyle, notably in the Western world. At the same time, the population in developed countries with a higher level of education is noticing this problem too.
The principle of sustainability should not only be applied to CO² emissions, but also to the water industry. Several countries and private individuals also recognize this. Water is becoming more and more important as a scarce commodity. This is also attracting companies’ and investors’ attention. The amount of money companies invest in water is growing rapidly.
How to invest in water? Concrete investment opportunities for 2021
Water as a commodity is in great demand. However, what I have found is that water as a theme gets less attention when discussing sustainability and ethical investing than, for example, CO2 emissions or even guns. Although the water footprint is incorporated in sustainability ratings for companies, the theme still seems to be relatively underexposed. Unjust as we are all impacted by it on a daily basis and without, we simply cannot live.
But now the question arises on how to make an informed investment decision in water or blue gold. We will first look at the water industry with all its sub-areas of the water cycle. These companies develop solutions for all kinds of water applications such as water supply, water purification, leak detection, and quality measurements.
In concrete terms, they are manufacturers of pumps, pipes, filters, irrigation equipment, and measuring and leak detection equipment. In addition, there are also companies that provide water infrastructure, water recycling, and desalination using filter stations and chemical processes. They play a necessary role in the challenges water faces by developing and improving techniques and products.
Besides extracting water, the treatment, supply and the latest technologies for electricity generation are important value drivers for the industry. Wastewater disposal, treatment, and recycling are also interesting areas of water management. But also special plants for desalination of seawater and power plants for electricity generation are promising future fields in which investing in water could be worthwhile.
Water and durability
Every drop of water must be used sensibly. Collecting and reusing water is crucial for a sustainable approach to the economy and the environment. It is better to monitor water in a circular process so that it is filtered and reused. In doing so, the water retains its full utility value.
There is a lot to gain from saving and collecting freshwater. On a domestic level, this includes toilets, showers, and taps. Also for industrial applications and within agriculture, many improvements are feasible. For example, there are already profitable initiatives in which the organic material of wastewater is reused as a fertilizer in agriculture or as a fuel for all kinds of applications. There is also a massive focus on vertical farming, where crops are grown vertically and with much less soil, water, and energy needs.
Excellent Water ETFs and Funds to look into
Next to private investment in the already mentioned market-leading water companies of the different parts of the industry, investing in water funds and some of the best water ETFs seems to be an excellent opportunity.
There is also the option of investing in water in a more sustainable way, too. Here is a selection of some of the best water ETFs and promising global investment funds for water.
Active fund management
Passive funds / trackers
3. Should you be investing in water: the new gold?