We use it every day for drinking, washing, rinsing, showering, etc. Much of it is 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! But how do you invest in it, and is it even worth your money?
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.
Besides, private households, 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 if water is something you should invest in it, and if so, how? The focus is on some of the best water ETFs and global investment funds for water less on individual stocks.
Water: a scarce commodity
Water is vital. We cannot imagine life without it. After all, clean drinking water comes out when we turn on the tap in the western world. This simple fact makes the availability (and quality) of water critical.
How scarce is water?
There is only a limited amount of fresh water on our planet: about 2.5% of the total water surface.
In Belgium, we have free access to potable water, but we are also increasingly feeling the effect of periods of extreme drought. 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) don’t have an essential drinking water supply. And this number is exploding due to climate change, humans’ quest for economic growth & prosperity, and an ever-increasing world population. Many reasons these figures will at least double by 2050. The UN estimates that around 5 billion people will live in arid regions and face water scarcity problems.
Why is water becoming increasingly scarce?
The main reasons are climate change and reduced rainfall or changing rainfall patterns, drought, and increased evaporation. 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, these are comparatively easy to remedy by investing in water technology and know-how.
Household & 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.
We see that more and more companies are taking steps in the right direction. Technological evolutions are making it increasingly cheaper. On the one hand, this is due to the increasing social importance. On the other hand, to the ever-stricter standards for industrial and drinking water. So companies are obliged to evolve along with it.
Wasting water is a global phenomenon
It is not only in peripheral regions of the world that people waste scarce water; Even well-developed economies such as the USA or Great Britain waste vast amounts of unused water. For example, in England and Wales, around 20% of their drinking water consumed seeps into the ground through dilapidated pipes.
According to the American Society of Civil Engineers, as much as 40% of water pipes are in poor condition in the USA. Many countries, including some in Europe, are failing to invest in water, such as 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 number of money companies invest in water is growing rapidly.
How to invest in water? Here are some concrete investment opportunities for 2022
Water as a commodity is in great demand. However, I have found 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 daily, and without it, we cannot live.
But this raises the question: how can you make an informed investment decision in this blue gold?
We will first look at the water industry with all its sub-areas of the water cycle. These companies develop solutions for water applications such as water supply, water purification, leak detection, and quality measurements.
From pump to water recycling
In concrete terms, they are manufacturers of pumps, pipes, filters, irrigation equipment, and measuring and leak detection equipment. In addition, some companies provide water infrastructure, water recycling, and desalination using filter stations and chemical processes. They play a vital 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 exciting 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