With nearly a half its land lying below sea level, the Netherlands knows a lot about water and how to make sure a city’s infrastructure is resilient to it, particularly flood risks and freshwater supply. Arcadis, a Dutch engineering firm, is applying that knowledge to cities around the world by creating infrastructures with sustainability at the forefront, such as water recycling facilities inside manufacturing companies in Mexico.
While a growing number of companies such as Arcadis are creating solutions and investing in ways to combat climate change issues, there's still untapped potential for water investment, according to industry experts participating in the recent GreenFin virtual event.
"The global need for freshwater is set to grow exponentially. Meanwhile, many urban water systems are in dire need of repair," said Seb Beloe, head of sustainability research at WHEB Asset Management. "Add in desalination, agriculture and wastewater management, and water stands to become one of the world’s biggest capital-growth opportunities."
The United Nations projects that by 2030 global demand for freshwater is expected to surpass supply by 56 percent. The Nasdaq Veles California Water Index (NQH2O), which tracks the price of water rights across California’s farm belt, jumped nearly half during the first two weeks of April due to the short rainfall this winter season. Meanwhile, eight of the top cities in the U.S. are facing water scarcity due to contaminated waterways.
The global need for freshwater is set to grow exponentially. Meanwhile, many urban water systems are in dire need of repair.
At GreenFin 2021, investors shared their insights as to how they are profiting off water risk investments.
Ecolab is creating technology that businesses can use to calculate and reduce their water usage. American investment management company Essex is putting its money where its mouth is and tackling the water crisis through individual industries. In a similar fashion, British asset management company WHEB is making sure each company it invests in is not only in the process of going zero-carbon but addressing social issues in tandem.
And while each company agrees that change has to happen at a local level, here’s their advice on how they’re tackling the issue through their companies.
Ecolab: Water is a shared resource
According to Emilio Tenuta, vice president of corporate sustainability at Ecolab, one key to addressing water issues is "setting standards that are globally consistent and locally adaptable to inform decisions and encourage collective action."
Ecolab focuses on research, technology and innovation when it comes to water investments. It has worked with companies including Kraft, Néstle and Marriot to help reduce their water usage. The company recently launched an updated version of its publicly available smart water navigator, which helps organizations assess their water risks and come up with a plan and goals to address them.
Part of the purpose of the navigator is to close the gap between organizations’ water reduction targets and their results. Tenuta said many companies are trying to address water usage in order to solve internal operational problems, but they are not connecting those goals with the environmental needs of the communities where they are based.
And when thinking about investing in other technologies and companies, it’s important to recognize "water as a value-valued asset, and not as a scarce liability," Tenuta said. "We know that water is a shared resource, and actions need to be driven locally."
Essex: Water is an expression of climate change at a local level
Water is one of the nine themes that make up the sustainable investment philosophy at Essex. However, William Page, portfolio manager at Essex Investment Management Company, pointed out the other eight themes are all closely connected to water as well.
For example, 72 percent of water usage in the world goes to agriculture. And when it comes to energy, Ceres, a nonprofit organization that works with capital market leaders to solve sustainability challenges, found that 20 percent of the largest publicly traded companies are heavily reliant on water, particularly in industries such as oil, semiconductors and chemicals.
"Water is an expression of climate change. It's completely directly linked, but it's a localized exhibit of climate change," Page said. "If you think about climate in the notion of the externality of CO2 being monetized, that's more of a fungible externality. Whereas water, in exciting fashion, is way more complex. So it's an area that is fraught with risk, but also, most importantly, a major opportunity."
WHEB: Water issues are social issues
Beloe said it's not just about investing in companies that are doing something to address climate change, but investing in companies that are doing something to help communities adapt to become more resilient. Water issues are social issues, he noted. Companies taking action to save water in their daily operation is a positive step. But they also should look at how their use of water is affecting the community they are in, he said.
For example, during the GreenFin Panel, Beloe mentioned partnerships and initiatives where farmers work with nearby cities to create healthy ecosystems that not only prevent their land from flooding but also better preserve the water quality across the region.
WHEB is an investment strategy company based in the United Kingdom that backs businesses making products and services to address sustainability challenges. One company it invests in is Arcadis. One of its projects, with General Motors in Mexico, examined ways to grow the automaker’s manufacturing plant while reducing the amount of water extracted. Arcadis did this by creating recycling facilities that preserve the local water supply and quality.
When it comes to addressing water issues from a local and social aspect, Beloe said, "I think we can definitely raise our game as the investor community as a whole to that opportunity."
According to the Word Research Institute, if current use water continues at its present level, by 2025 two-thirds of the world will live in water-stressed areas.
Corporate water action doesn’t match the urgency of our world's water crisis, but it should.