World Water Day: Investing to avert a global water crisis

The water crisis is one of the greatest challenges facing our planet today. Global population growth, urbanization, and climate change are straining our planet's water resources. To meet this challenge, it is important to invest in innovative and sustainable solutions. Today, on the occasion of World Water Day, three experts from abrdn, Pictec AM, and Wellington Management discuss the importance of investing in water as a solution to tackle the global water crisis and explain how to do so.

Sarah Norris, Head of ESG - Equities, abrdn

Water is a precious, finite, and essential resource for life on Earth. Yet, unfortunately, we are not making sufficient progress in establishing universal access to basic sanitation and in promoting the protection and responsible use of ocean resources.

Where do we think there are opportunities?

One example of a company improving water use is Tetra Tech, a leading resource management consultancy specializing in water-related services. They help clients with a range of water projects, from water reuse in Mongolia to water loss management in Jordan to groundwater replenishment and reuse in California.

Tetra Tech supports 70,000 water reuse and conservation projects in 100 countries. These include flood prevention, stormwater management, wastewater treatment, and water supply management projects. Wherever possible, natural solutions are used, such as the creation of a 'living breakwater' to stabilize the marsh shoreline and support biodiversity in Alabama, and green stormwater infrastructure to transform the way stormwater is treated in Raleigh, North Carolina.

Last year they helped treat, save, or reuse 328,000 megalitres of water and protect, manage, or restore 178 million hectares of land and water. Their projects also avoided 20.6 million metric tons of CO2e.

Another company is the Dutch company DSM, which specializes in nutritional and health products, such as food supplements and ingredients containing plant-based alternatives to fish. They offer vegan fish flavorings, as well as alternatives to algae omega-3 and natural algae oil for fish feed. A single tonne of their Veramaris natural algae oil avoids the capture of 60 tonnes of wild fish to produce salmon feed, thus protecting the marine biodiversity of our oceans.

Companies whose core business is not water-related can still improve their water management and consumption. Azure Power is just one example; it is a major Indian solar energy company that builds and operates some of the largest solar power projects in the country. However, India suffers from water shortages, and the solar panels, which attract dirt and dust, require regular washing to operate effectively. The company has introduced robotic brushes for solar panels to minimize water consumption and recycle 50 percent of the groundwater it uses. Its management is aiming for net water neutrality this year.

Steve Freedman, Head of Sustainability Research at Pictet AM

The world needs better access to clean water and sewerage. The challenge is to optimize their environmental footprint and make these necessary industries sustainable. In this respect, the focus of governments and consumers on environmental protection opens the door to innovation and new business models.

It should be noted that as the world rushes to reduce greenhouse gas emissions, the carbon footprint of the water industry is moving in the opposite direction. This is because the priority is to ensure access to clean water and sewerage services, which means more infrastructure and more wastewater processing. So total emissions inevitably tend to increase. The challenge is to limit them as much as possible.

Indeed, today, the water industries generate 1.55 billion tonnes of greenhouse gases/per year, about 3% of global emissions. But one in four people does not have access to safe drinking water and 46% lack safe sanitation. The UN's Sustainable Development Goal number six focuses precisely on universal access to safe drinking water, sanitation, and hygiene. So, according to research by Pictet Water's thematic advisory board, without efficiency improvements to meet these targets, the carbon footprint of these industries will almost double by 2050, to 2.82 billion tonnes.

However, more than 200 million tonnes of C02/year emissions can be saved through decarbonization. This can include better pressure management, monitoring, and leakage repair. In fact, water pumping is a major contributor to greenhouse gas emissions. Currently, only 10% of pumps show optimized efficiency. Some need to be replaced and others need upgrading, such as adjusting the pressure or changing the location, although this is costly and can cause temporary supply disruptions.

The state of the infrastructure is another problem. The water sector maintains the same distribution models as a century ago and is highly fragmented. So its efficiency can be improved by consolidation in the industry and a more centralized structure.

On the other hand, the amount of water we use has to be taken into account. At the domestic level, water meters have proven to be very efficient and a lot of progress has been made, but in agriculture, there is still a lot of room for improvement.

However, the industry can further reduce its environmental footprint if it finds ways to decarbonize the wastewater sector. It can even achieve a negative carbon footprint by converting sludge into clean energy. It involves capturing the methane released in anaerobic decomposition and converting it into heat and electricity. In wastewater treatment plants this reduces emissions and improves green credentials, creating a source of revenue from the sale of renewable energy to the grid or on-site use. In addition, water can be separated from the sludge and reused as a cheap alternative to desalination. In this way, decarbonizing the wastewater sector can save 2 billion tonnes of emissions per year by 2050.

Louise Kooy-Henckel, Joy Perry y Paul Skinner, Directores de Inversiones de Wellington Management

Our research, in collaboration with the Woodwell Climate Research Centre, has reaffirmed that there are opportunities to invest in solutions that strengthen water infrastructure and promote water conservation and efficiency. Some of these are long-term: for example, desalination is an expensive process with potentially damaging environmental side effects, but as water scarcity intensifies, it may become a more cost-effective solution in some regions. The most immediate opportunities lie in the water value chain, which, in addition to being fragmented, in our view, could allow companies to strengthen their competitive advantages and drive change, especially by leveraging their digital skills.

The exciting potential of impact investing

Our impact investment teams have observed that companies and issuers are increasingly developing innovative solutions along the water value chain. Here are a few examples:

As part of our approach to impact investing in Wellington, we assess companies and emitters for materiality, additionally, and measurability. First, the impact activity must be at the core of the company's or issuer's project, with the majority of its core products or services targeting one or more of our 11 impact themes.

Second, the company or issuer must address an unmet need or target underserved communities by offering a unique or differentiated solution. Finally, we must be able to measure impact by identifying a KPI that will be used to monitor the progress of our investments.

Our impact measurement and management system focuses on five key factors. For each impact investment