Investing in water at risk amid rising demand, scarcity

Water is the ultimate renewable resource, but the world seems to be running out of it.
By 2030, global water demand will have exceeded the sustainable supply by 40%. By 2050, nearly 6bn people will suffer from clean-water scarcity, according to a 2022 research report by India-based Observer Research Foundation.
The case for investing in water is gaining traction because of rising demand and a scarcity of clean water, according to analysts at Morningstar Inc.
In a report marking World Water Day, they spotlighted five US-based funds, as well as some companies, that focus on expanding access to water, improving water quality and providing solutions that address other water challenges.
“Investors looking for exposure to the reliable supply of safe freshwater should carefully consider these investments as part of a well-diversified portfolio,” according to the report. “It’s a small landscape, but it’s also very diverse.”
In all, there are 11 water funds in the US with a combined $6.3bn of assets. All the funds except one devote more than two-thirds of their portfolios to companies that generate the bulk of their revenue from water management and sanitation activities, according to Morningstar.
And the funds have been performing relatively well. The Invesco Water Resources fund, for instance, gained at an annual rate of almost 12% during the past three years, roughly matching the returns of the S&P 500, according to a Bloomberg report.
In a wider sense, the water sector today is under-financed and chronically short of capacity to meet demand. But to achieve the Sustainable Development Goal (SDG) of ensuring clean water and sanitation for everyone, the current global spending on water needs to rise fourfold, to more than $1tn per year (1.21% of global GDP), according to a Project Syndicate report in 2023.
Higher GDP and population growth levels, as well as the increasingly hot climate, mean the Gulf countries need to spend heavily to meet their energy needs.
According to the CDP, a not-for-profit organisation that collects environmental-impact data, more than $300bn of business value is at risk globally if no action is taken to address water scarcity. Yet it will cost only one-fifth of that total – $55bn – to tackle the problem.
The CDP values such “water-related opportunities” at $711bn, reflecting not just savings on water use but also the growth of long-term potential markets in water-smart technology and the benefits of better community relations.
Another, much-criticised way of investing in water is futures trading.
In late 2020, the Chicago Mercantile Exchange (CME) launched the first water futures market. Water then joined gold, oil, and other commodities traded on the Wall Street.
Apart from being a tradable contract, the futures launch also highlighted growing worries that the life-sustaining natural resource is becoming scarce across of the world.
Proponents of the market say that the futures contracts will function more like insurance. Farmers who participate in the market can insulate themselves from volatile changes in water prices by securing another source of income.
But the United Nations had warned in late 2020 that water futures risked an essential public good being treated like gold and oil, leaving the market vulnerable to speculative bubbles.
As a matter of fact, climate change is speeding up.
All the major indicators of climate change smashed historic records last year, according to United Nations’ World Meteorological Organisation.
The lives of millions of people were upended by natural disasters made worse by climate change, with countries everywhere struggling to cope with billions of dollars in economic losses, according the WMO report for 2023.
Longer term, from a market perspective, water funds are seen to offer “a thematic investment opportunity,” particularly in a world where access to clean water is becoming more and more scarce.