One of the most ubiquitous dilemmas for populations worldwide is inadequate access to fresh water — 97% of the world’s water is saltwater, with only 1% of the remaining water available for drinking, agriculture, and industrial uses. Economic growth, climate, and rising populations are three of the factors affecting the availability of fresh water, and the issue is expected to intensify, even in regions currently considered water abundant. As the world’s population expands, maintaining an adequate supply of this limited and finite resource has become a priority of governments and business leaders.

An investment in water consists of the pipes, pumps, and meters that form the infrastructure; the technology and software that manage the infrastructure; and the treatment technologies that make water drinkable.

We believe the challenges confronting water resources and its associated infrastructure present a compelling thematic investment opportunity, since water shortages in the coming decades are expected to boost prices for this commodity.

Tightening Water Supply and Demand Gap

The demand for water has been climbing at a rate of about 1% per year, largely due to population growth and augmented water use in developing economies. The Organisation for Economic Co-operation and Development (OECD) projects water use will rise more than 50% between 2000 and 2050 (Chart 1).[1]  Currently, 3.6 billion people live in areas that suffer from water scarcity for at least one month a year, and it is anticipated this figure will rise to 5 billion by 2050.[2]

Government Regulation

Globally, many governments recognize water scarcity poses a threat to economic momentum and social development. Independently, some government officials are taking steps to rectify past missteps such as insufficient public spending on infrastructure, technology, and treatment processes, as well as a historically late response to shifting water demands and pollution. Most water services are delivered by the government, thus a mandate for higher water quality standards has considerable implications for future market growth and investment opportunities in the private sector as the pressure grows to address concerns around the water supply.

In the United States, droughts and contaminated water are becoming more commonplace mainly due to aging infrastructure and faulty water treatment facilities. The American Water Works Association reported in 2017 that about $1 trillion will be necessary to restore the nation’s underground pipes,[3] and the U.S. Environmental Protection Agency has projected $472 billion will be required to modernize the water and waste water systems.[4] Recognizing the problem, Congress passed the Water Resources Development Act of 2016 to address matters related to water security, lead contamination, sewer-overflow control, and drinking water conservation.

With the boom in urban centers, developing economies are finding their water resources stretched, making it necessary to fortify these resources. Global infrastructure projects are expected to rise 5–8% a year in the coming decades.[5] More than 50% of the world’s population currently lives in urban areas and that number is expected to swell to 75% by 2050, with most of the growth in the developing countries.[6] Unsurprisingly, this has led to further strains on the water supply.

Water Technology Innovation

A rise in innovative technology to address global water resources and sustainability hurdles is changing the way water is delivered and used. This has led to a number of investment opportunities in the private sector in such areas as water treatment and conservation, desalination, groundwater extraction, water re-use, green energy solutions, and new processes to reduce water leaks caused by aging infrastructure.

Advancements in sensor technology and analytics in particular have helped the industry make more informed decisions around water management, for example:

  • Smart meters have played a crucial role in improving the metering and pricing of water and have been key to detecting leaks and reducing overall water use.
  • Smart pump technology is being developed, including the unveiling of waste water pumping systems with integrated intelligence. These systems can adapt performance in real time and give feedback to station operators, enhancing efficiency.  

Globally, desalination technology is playing a greater role in the water industry currently,more than 100 countries currently rely on desalination for some of their fresh water consumption needs.[7] Demand is also coming from the hydraulic fracturing industry, which requires an immense amount of fresh water. While 20% of the water used by fracking can be re-used, 80% becomes saltier than seawater. The technology is still new and quite expensive, but we believe it has huge potential in the fight against water scarcity.

Water scarcity is a critical issue, faced with the challenge government leaders have enacted stricter regulations in both developed and emerging markets around water quality standards, significant market growth in water analytics and treatment technology, and much-needed spending on essential infrastructure. There has been a marked upswing in investor interest in companies that are actively engaged in improving the delivery of water resources.

This is a summary of the paper Thematic Investment Opportunity – Water Resources and Infrastructure. To learn more about this topic, download the complete article or contact a Hawthorn Investment Advisor.

Water Resources & Infrastructure