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Thirsty Planet Revisited

Neville White
By Neville White Head of SRI Policy and Research October 2017
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Thirsty Planet Revisited

Amity Insight: Thirsty Planet Revisited

In 2011 we published the first of a two-part resource series ‘Thirsty Planet’ which looked at water threat, stress and opportunity. This noted that a rising population was ‘likely to place unprecedented strain on the world’s natural resources [and]…the ability for vast sections of the population to access fresh water’.

Six years on, we view the challenge of providing clean, potable water to a growing, urban population, balanced against the demands of agriculture, commerce and industry to be among the most pressing and urgent. Indeed the World Economic Forum’s (WEF) annual Global Risk Report1 has placed ‘water crises’ in the top three global risks in terms of impact since 2012. For the WEF, the impact of water crises is second only to extreme weather events and the use of weapons of mass destruction – whilst a significant water crisis is now considered more likely than either food related crises, or the failure of financial systems and institutions.

Water is perhaps uniquely, an economic, societal and environmental risk. Lack of water has an immediate and catastrophic impact on human, societal and economic viability. In ‘Thirsty Planet Revisited’ we provide a fresh look at water risk and opportunity, and provide a new section on the interconnected links of water shortage and climate change. We look at the ability of new technology such as forward osmosis to make desalination a solution of scale in many waterstressed parts of the world. The Insight looks too at the broad investment value chain and the opportunities for responsible investors in the $600bn global water sector providing sustainable solutions in the water and waste-water sectors.

Demand - Supply Imbalance

Demand - Supply Imbalance According to the UN, the Basic Water Requirement (BWR) per day to support drinking, sanitation, cleaning and cooking is 30-50 litres. Actual individual use varies enormously; even in Europe where water conservation has been a priority, average use is 200 litres per day within the European Union. This abundant ‘overuse’ masks significant imbalances. 663 million people have no access to safe, potable drinking water, whilst 2.4bn people (according to the World Health Organisation) have no access to sanitation. 842,000 people – many of them infants – die prematurely as a result of unsafe drinking water, poor sanitation and hand hygiene.

Upstream, the migration of populations to urban, middle-class environments has seen exponential growth in protein enriched diets, which require significant additional water to support; a diet containing 20% meat increases water consumption to between 1,000-1,300m3 in terms of livestock production and processing.

Under ‘business as usual’ scenarios, demand will exceed supply by 40% by 2030. More than 20% of GDP is produced in water-scarce areas, with the International Food Policy Research Institute estimating that water stress could place 45% of global GDP at risk by 20504 .

Water scarcity already affects 40% of the world’s population, and this is projected to rise. Over 1.7bn people live adjacent to river basins where water use exceeds an ability to replenish. The World Health Organisation (WHO) estimates that by 2025, half of the world’s population could be living in a water-stressed landscape. Globally, water use is growing at twice the rate of population growth and is already unsustainable, not least, as population growth is at its strongest in areas of water shortage or stress, such as parts of Asia and North Africa.

Opportunities in the Water Sector

Opportunities in the Water Sector As responsible investors, we see water shortage as presenting a risk to business and society and we will continue to engage with material users of water on its efficient use and management.

The water demand-supply imbalance also presents opportunities, especially via technology and engineering plays, and through solutions such as desalination, smart-metering, variable pumps and improved recovery and leakage reduction. There are opportunities too in brackish water recovery in the oil and gas sector, where the US alone produces 800bn gallons a year.

Dry cooling power systems require around 90% less water, and improved solutions are already being seen in water treatment, testing, piping and leak detection. Strongest growth is expected to be seen in the process control and management segment, whilst regulated utilities continue to exhibit strong cash-flow and dividend yield.

McKinsey & Co. has estimated that between now and 2030, $7.5 trillion of investment is needed globally to keep pace with demand forecasts, to respond to climate change, and to replace life-expired infrastructure. The total water market is put at $625bn, with the World Economic Forum (WEF) saying that for every $1 of investment, an economic return of between 5-25% is generated. We view the substantial water value chain as presenting significant investment and sustainability opportunities, going far beyond water utilities such as Severn Trent, United Utilities or Pennon Group.

Investment Thesis

Investment Thesis We believe there are compelling investment opportunities in companies providing solutions to resource scarcity across water driven by five long term trends:

1) Inadequate supply of water 
2) Increasing demand driven by population, industrialisation and urbanisation
3) Increasing regulation and government support
4) Increasing investment in infrastructure to address urgent global need 
5) Increasing investment in technology to facilitate more efficient use

EdenTree is well represented across the value chain, and additionally holds Impax Environmental Markets (Amity UK) which is a Fund investing in long-term macro-economic themes including water. Water scarcity presents strong opportunites in industries focused on water conservation, accessibility and affordability. Analytical equipment, piping, metering, purification and testing are key areas of potential growth. The global science and technology innovator Danaher Corporation, which is focused on improving quality of life around the world, including its leading role in water testing equipment is just one such company. Elsewhere there has been a renaissance in desalination technology, which is now at scale globally, driven by urgent necessity in regions such as India, Israel, the United Arab Emirates and southern Europe. Advances in filtration and membrane technology are replacing chemicals, and ultraviolet disinfection is replacing the use of chlorine in water purification treatment.

Leakage is known to be a particular challenge in developed markets where infrastructure is ageing, and in the developing world owing to poor or substandard installation. It is estimated that 1.7 trillion gallons are lost annually in developing urban environments according to the US Geological Survey12. Companies with proprietary technology reducing leakage play an important role in preserving limited resource. Companies such as Pure Technologies, Mueller Water and Pentair operate in this well-developed space.

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