Not a Drop to Drink: A Look at Water Scarcity

It’s easy to take a running tap for granted, but water scarcity is a serious problem in many parts of the world. Nearly 1 billion people worldwide do not have access to clean and safe drinking water, according to The Water Project, an organization seeking to remedy this issue.

Many must expend significant time and effort to collect and/or decontaminate their water supply. In this way, water shortages contribute to low levels of education and economic development as people are forced to focus simply on survival. Even more troubling are the water-borne diseases that spread through unsafe drinking water.

Water scarcity may have both economic and physical dimensions. From an economic perspective, water in some places is available only at a cost too high for many to meet, while in other areas, clean, safe drinking water is simply not physically available.

“At the current consumption rate, this situation will only get worse,” states the World Wildlife Foundation. “By 2025, two-thirds of the world’s population may face water shortages. And ecosystems around the world will suffer even more.”

The economic impact of water scarcity

Access to water is vital to economic and political security worldwide as the financial consequences of water scarcity extend far beyond communities without reliable access to safe water. There is a growing segment of the investment world that is directing capital towards safe water infrastructure, as per The Globe and Mail. Simon Gottelier, co-manager of Impax Asset Management’s Water Strategy fund, predicts this sector will only grow.

“We see water as a long-term secular growth theme,” Gottelier told the news outlet. “There are multidecade trends we are positioning ourselves to capitalize on.”

Gottelier identifies a number of reasons for his company’s “water hypothesis.” For one, as growing populations become increasingly urban, existing water infrastructure undergoes considerable stress and must be replaced, while developed areas often demand updated water infrastructure since many have invested very little into these systems until now.

Furthermore, government oversight of water quality is increasingly becoming a problem, and the necessity of coping with climate change is putting an impossible strain on many states. Severe weather events may damage important parts of water systems such as sewers, drainage infrastructure and wastewater treatment plants, meaning extensive replacements and repairs.

Investing in water

For investors interested in water, relevant companies may be divided into three areas: infrastructure, water treatment and utilities. A diverse portfolio is recommended, and water-related investing may pay off in the future as shortages increase and standards for best practices in this area continue to rise.

“I would suggest it is extremely difficult to have a fund entirely dedicated to water,” Jason Gibbs, vice president and portfolio manager at Dynamic Funds, told The Globe and Mail. “There just aren’t enough stocks that fit the theme.”

Jason Stevens, investment executive at Sprott Global Resource Investments, discussed the possible future of water with Investing.com, and his less than optimistic opinion from a social point of view has important implications for those in a position to invest.

“The highly-politicized water markets in the U.S. are broken and extremely inefficient,” he told the publication. “The added stresses of weather events such as droughts exacerbate water supply issues to our most critical industries. Making water investments now is exploiting what I believe to be an inevitable transition to less-subsidized, higher-priced water.”

Water scarcity highlighted at economic forum

At the World Economic Forum on East Asia, business leaders agreed that “addressing growing global concern over environmental challenges such as climate change and water” was the issue with the greatest potential impact on Asia, its people and its economies.

“We will be running out of water long before we run out of oil,” Peter Brabeck-Letmathe, chairman of the Board of Nestle in Switzerland, said at the conference. “One out of every five children is dying every 20 seconds because we haven’t been able to solve the problem of clean water today.”

Brabeck-Letmathe’s dire warning underlines the urgency of worldwide clean water shortages, and as the issue becomes more serious and garners more social attention, governments will need to provide a solution to the water problem. As demand for improved access to clean drinking water grows, opportunities to invest in sound water infrastructure will only grow.