Sarah WarnerWater scarcity is the lack of fresh water resources to meet water demand. It affects every continent and was listed in 2019 by the World Economic Forum as one of the largest global risks in terms of potential impact over the next decade. 

Demand is expected to outstrip supply by 40% in 2030*, if current trends continue.

 Water scarcity can result from two mechanisms:

Physical (absolute) water scarcity

Physical water scarcity results from insufficient natural water resources to supply a region’s demand, including the water that is needed for ecosystems to operate effectively.

Economic water scarcity

Economic water scarcity results from poor management of the sufficient available water resources. According to the United Nations Development Programme, it is economic water scarcity that is found more often to be the cause of countries / region’s water scarcity, as most countries or regions have enough water to meet needs, but lack the means to provide it in an accessible manner.

Water crisis and effects on the environment

Water scarcity has many negative impacts on the environment, including lakes, rivers, wetlands and other fresh water resources. The resulting water overuse that is related to water scarcity, often located in areas of irrigation agriculture, harms the environment in several ways including increased salinity, nutrient pollution, and the loss of floodplains and wetlands.

Through the last hundred years, more than half of the Earth’s wetlands have been destroyed and have disappeared**. These wetlands are important not only because they are the habitats of numerous inhabitants such as mammals, birds, fish, amphibians, and invertebrates, but they support the growing of rice and other food crops as well as provide water filtration and protection from storms and flooding.

When there is not enough potable water for a given population, the threat of a water crisis is realised. The United Nations and other world organisations consider a variety of regions to have water crises of global concern. Vegetation and wildlife are fundamentally dependent upon adequate freshwater resources. Areas such as marshes, are more obviously dependent upon sustainable water supply, but forests and other upland ecosystems are equally at risk of significant production changes as water accessibility is reduced. In the case of wetlands, considerable area has been simply taken from wildlife use to feed and house the expanding human population.

 Our investments

Given the severity of water scarcity and its impact on both the environment and society, we seek to hold funds in our models that are looking for solutions to this crisis. Funds that invest in companies that are focused on addressing the water resource issue.

In our SRI Adventurous and SRI Balanced Growth models we hold Pictet Water. The Pictet Water fund invests in companies providing water supply or processing services, water technology or environmental services.

These models also hold the Impax Asian Environmental Markets fund, which invests in companies that are focused on developing a more efficient delivery of basic services such as energy, water and waste in the Asia Pacific Region. The Impax fund invests in Coway. In the Coway R&D Centre, an environmental technology research institute, there are about 370 researchers that have been focusing on developing sustainable and innovative technologies to preserve the values of clean and healthy water.

The aforementioned models also contain the FP WHEB Sustainability fund, which focuses on the opportunities created by the transition to healthy, low carbon and sustainable economies. The investment team selects high-quality companies from nine broad themes, and one of these themes is water management.

This fund also invests in Ecolab, which is a global provider of hygiene products to restaurants, hotels and hospitals. They engineer these products so that they require much less water to be effective.

In our Adventurous model is the JB RobecoSAM Smart Materials fund. The fund invests worldwide in companies which provide technology, products or services relating to the extraction and efficient handling of raw materials, recycling of used resources and innovative alternative materials. This fund gives us exposure to Thermo Fisher Scientific, whose mission is to enable their customers to make the world healthier, cleaner and safer. Their team create innovative technologies that help address some of society’s most pressing challenges, including treatment of disease, and access to clean water, by producing a number of water purification systems.

Within the SRI Defensive, SRI Balanced Income and Ethical Balanced Income models is the Climate Assets Fund. The fund invests around the world with a focus on investment opportunities arising from the convergence of climate change, resource scarcity and population shifts.

The fund also invests in American Water Works, which runs a research and development program that has evolved to become a leading water related research program, achieving developments in the sciences of drinking water and wastewater. Their Innovation Development Process pursues innovations for their customers and the water industry. Using the IDP, they have examined more than 600 technologies to date, assisting them to create greater efficiencies in the areas of water reuse, desalination, wastewater operations, and bio-energy.

In the Ethical Balanced Growth model is the Jupiter Ecology fund which has a policy of protecting the environment. The Fund invests worldwide in companies which demonstrate a positive commitment to the long-term protection of the environment. A prominent holding within the fund is Xylem, who produce products that continue to drive their business forward in moving, testing, analysing and treating water. Through their citizenship program, Xylem bring clean water, sanitation and hygiene education to schools and communities in emerging markets, and respond with water solutions when disaster strikes around the globe. Xylem’s mission is to provide and protect safe water resources for communities in need around the world, and to educate people about water issues.

In summary

The global water crisis is one of the largest risks in terms of potential impact over the next decade.

Institutions worldwide, from the WWF to the World Economic Forum, acknowledge both the severity of this threat and the need for forward thinking innovation to combat it.

As a result, companies working towards positive change are now being viewed with renewed vigour from stock-pickers across the market. Acknowledging the necessity for climate-related technologies, rather than simply the preference for such, has arguably led to ‘green’ investing becoming the new growth.

We continue to monitor such companies by way of bottom up analysis across our SRI & Ethical fund universe and are committed to focusing on high quality, credible funds that match both our risk criteria as well as our ‘green’ requirements.

By investing in our SRI and Ethical models, investors have the opportunity to participate and facilitate solutions to this risk without sacrificing returns.

*Global Risks Report 2019 | **Water Scarcity Threats – WWF 2013

Download: Investing for good – Water

 

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