Imagine a commodity with limitless demand and sharply diminishing supply. Cornering that market would be a great way to lock in returns. But when the substance in question is water it could mean market distortions that ultimately deprive the needy of one of life’s most precious resources.
From commodity guru Jim Rogers to the likes of Goldman Sachs, water is increasingly seen as “blue gold,” where huge profits are eyed as the world struggles with a resource under severe stress.
Water, however, is also an ideal vehicle for investors with sustainability goals. A handful of funds have sprouted up to tap the sector but in a manner different from traditional Wall Street investing: they look for companies developing technology that would conserve or improve access to the resource.
“We see a tremendous convergence between global sustainability challenges and an investment opportunity in water,” said Ellen Kennedy, Manager, Environment, Water and Climate Change, at Calvert Investments, which manages a high profile water fund.
Fresh water is unevenly distributed around the globe, with some 60 percent of the supply located in just 10 countries, according to a Goldman Sachs report. But some 3 billion people, just under half the world’s population struggle with a lack of adequate water supplies.
The world’s water infrastructure is under siege from neglect, pollution and climate change. Rivers are drying up before they reach the seas and groundwater is being tapped faster than nature can replace it. Crumbling infrastructure around the world is also wasting vast amounts of the rapidly shrinking resource.
“There are not too many places now where a human can take a straw and put it in a fresh water source and drink it and not get sick,” David Henderson, head of the water investment company XPV Capital Corp., told the Globe and Mail.
It is estimated that the United States wastes some 20 percent of its water because its infrastructure is falling apart while in bustling China, factories have closed because of a lack of water.
“Water needs are quickly increasing in emerging economies such as China and India, which together account for nearly 40 percent of the global population and a third of global water demand,” according to Goldman Sachs.
The world needs trillions of dollars in investment and governments simply don’t have the money to keep up. The World Economic Forum estimates there will be a shortfall of 40 percent between forecast demand and available supplies by 2030.
The water industry, which includes water efficiency technologies and ways to extract fresh water from the seas or waste water, is estimated to be worth about $300 billion globally. Industry analysts say there are probably 350 companies around the world involved in trying to develop these new technologies, and most have smaller- to mid-sized capitalizations.
A variety of investment funds have risen up to take advantage of investor demand, including some with sustainable goals.
Some of these funds have strict investing criteria and would not get involved in companies that market bottled water or buy into conglomerates whose main business was not water.
U.S. based Manchester Capital created the Equinox Water Fund in 2006 with two clients and has grown in value from $10 million to about $20 million today, supported by up to 24 clients, according to the company.
“The clients that are in it have been very pleased,” said Brian Vogel, a Wealth Manager, at Manchester Capital. “It has met their social mission requirements and it has also provided them with a nice investment return.”
After investing in a company, Manchester plays an activist role at the shareholder level to improve how the entity invests in water. “And so when we are looking at voting proxies we are voting things that are going to improve the social mission,” Vogel said.
The Calvert Global Water fund, which invests 80 percent of its assets in companies whose main business is water, invests in the water cycle, in line with its sustainability goals. In addition it also 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.
“There is a legitimate concern over the privatization of water and one of the ways we address that is to try to instill 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.” she said.