(This story was originally posted at the Guardian’s Sustainable Business site here.)
From commodity guru Jim Rogers to the likes of Goldman Sachs, it has become almost cliché to refer to water as “blue gold” – a whole new commodity that can be bought and sold on par with gold, oil and corn.
After all, as demand grows and water infrastructure crumbles, the world is running out of drinkable water. And many believe the problem can only be solved if cash-strapped governments team up with “angel” investors and others in the private sector.
But not everyone believes such partnerships will ultimately improve access to those most at risk, the poor. The fear is that – for a commodity with limitless demand and sharply diminishing supply – market distortions could ultimately deprive the needy of one of life’s most critical resources.
To the rescue, at least in part, could be a handful of funds – with strong sustainability goals – that invest in companies developing technology or infrastructure that could improve access to the resource.
“We see a tremendous convergence between global sustainability challenges and an investment opportunity in water,” said Ellen Kennedy, manager of environment, water and climate change at Calvert Investments, which manages a high-profile water fund.
Fresh water crisis
The challenges are huge. Some three billion people, just under half the world’s population, struggle with a lack of adequate water supplies, according to a Goldman Sachs report.
The world’s fresh water resources are in crisis, hurt by crumbling infrastructure, pollution and climate change. Rivers are drying up before they reach the seas and groundwater is being tapped faster than nature can replace it.
The world needs trillions of dollars in investment, and governments simply don’t have the money to keep up. The World Economic Forum projects a 40% shortfall between forecast water demand and available supplies by 2030.
“Smart investment is needed, at all levels,” said Mark Duey, head of program quality at Water for People, which works with donors, including private companies, to improve access to water in developing countries.
The investment funds back companies that are sometimes key supporters of the advocacy group, he said.
One such fund, the Equinox Water Fund, has grown from $10m in value in 2006, when Manchester Capital created it, to about $20m today, according to the company. It’s supported by up to 24 clients.
“It has met their social mission requirements and it has also provided them with a nice investment return,” said Brian Vogel, a wealth manager at Manchester Capital.
After investing in a company, Manchester plays an activist role at the shareholder level to improve how the entity invests in water. “When we are looking at voting proxies we are voting [for] things that are going to improve the social mission,” Vogel said.
The Calvert Global Water fund engages in advocacy and policy work to promote “thorny issues” around access to clean water and establishing guidelines for companies in how they deal with their water use, according to Kennedy at Calvert.
“It really invests in the water cycle, so all of those facets related to capturing water, treating water, delivering water, storing water, etc,” she said.
The dangers of commoditization
But not everyone is welcoming private investment in water, especially when it means companies getting involved at the utility level, or in the actual distribution of water to people, especially the poor.
In September, Boston-based Corporate Accountability International, or CAI, sent a letter to World Bank President Jim Yong Kim demanding that its banking arm, International Finance Corp, stop investing in privately held water companies.
Shayda Edwards Naficy, CAI director of the international water campaign, claims the funds rarely meet their development goals and, in the end, undermine the democratic control and governance of public water systems.
“I think they are well intentioned,” Naficy said of the investment funds. “The intention is probably to support access but the problem is that instead of investing in access, they are actually investing in the private water funds that essentially are furthering ‘commodification’.”
CAI’s letter followed months of lobbying and release of its 2012 report, “Shutting the Spigot on Private Water,” that found private investment often hurt access to water, especially for the poor.
The report highlighted the development of Manila’s water system as an example of where good intentions can go wrong. The World Bank’s IFC advised the city in 1997 to privatize its public water system, which led to the division of the system into two privately funded franchises. The IFC took a direct equity stake in one entity and loaned money to help finance the other enterprise.
“Hundreds of communities remain without safe water, and the cost of a connection, even where available, is unaffordable for many of the city’s residents,” the report concludes.
The private sector’s role
The World Bank disputes the findings and stands behind a paper it produced in 2010, which supports private investment, finding that private operators can improve efficiencies and reduce waste of the resource.
Investment fund managers say the private sector has an important role to play.
Says Calvert’s Kennedy: “There is a legitimate concern over the privatization of water and one of the ways we address that is to try to instil the human right to water in all our company dialogues and encourage companies that we hold to make a policy statement to the human right to water.”