In the emerging assets industry, attention has steadily been directed towards water as a profitable
investment. Demand for water has been growing in the last few decades due to an expanding global
population. However, with the rise of climate change and the urbanisation of natural soils, water supply has
been continuously declining. As a result, water is gradually becoming a scarce resource and therefore more
valuable. Consequently, water is often presented as the oil of the 21st century and a high growth investment
opportunity (Buckingham, 2008).
In order to understand how water is progressively becoming an emerging asset, it is essential to grasp the
nuances of different water sources. Indeed, financialization of water only applies to a very small portion of
the global water supply, which is fresh water. The vast majority of the water on earth, 97,5%, comes from
saltwater oceans. This means that only 2.5% of global water supply is fresh. But most of this fresh water is
not accessible as it lies underground or is frozen in ice caps and glaciers (Allianz Global Investors White Paper
Series, 2013). This leaves a very modest portion, around 0.5%, available for human consumption. However,
once this fresh water goes through the process of filtration and sanitation, only 0.007% is left (World Health
Organization). This means that 0.007% of global water supply in the world is potable water (i.e. safe for
consumption).
All these factors combined are particularly problematic considering the context of climate change and global
warming, which speed up the process of water scarcity. Pollution, for instance, participates in turning fresh
water sources toxic. In Global South nations 90 to 95% of sewage is discharged directly into rivers, lakes or
coastal waters without being treated (UNDP, 2006). As a result, this contaminates water supplies which in
turn become unusable. This is showcased through the Allianz Global Investors White Paper Series which
highlights how 80% of rivers in China are too toxic for fish to inhabit (UNDP, 2006). Regarding climate change,
stakes are particularly high for Global South nations considering temperatures there are rising the most. This
engenders water scarcities which are already turning into humanitarian disasters in some regions, such as
Madagascar. There, more than 58% of the countries’ people are currently lacking access to safe drinking
water and nearly half of all households live without sanitation facilities (Harding, 2021). As a result,
Madagascar is on the brink of experiencing the world’s first “climate-change famine” and the UN
characterized the level of suffering of this population as “catastrophic” due to the levels of hunger and food
insecurity after years of droughts and no rain. Thus, water scarcity will be augmented as the availability of
fresh water will decline and the demand rise with the population growth of the upcoming decades. Indeed,
by 2030, water global demand is expected to rise and exceed available supplies by 40% (Allianz Global
Investors White Paper Series, 2013).
Water scarcity is particularly worrisome as it will lead to tremendous losses in terms of human, economic
and financial capital. Indeed, water-related losses in agriculture, health, property and income will lead to a
decline of 6% in GDP with some countries seeing losses up to 7%. With the current state of water sanitation,
we are witnessing 675,000 premature deaths annually, a number which will continue to rise. Moreover, over
2.1 billion people today do not have access to safe drinking water, while 4.5 billion people lack access to
sanitation compatible with SDG6. According to the United Nations, by 2025, two thirds of the global
population will face water shortage and 1.8 billion people will be living in “absolute water scarcity”. These are
yet another situation which have worsened with the sanitary crisis. As a result, water availability is a global
issue that needs to be tackled now to anticipate and prevent the famines, diseases and wars that could arise
from its unavailability.
One solution that has been identified as a means to solve this issue is leveraging financial instruments. Firstly,
the nature of water and its specificities contribute to its worth. One important characteristic is that water has
no substitutes and cannot be replaced, giving it a monopoly with no potential entrants. Financially, this is
very appealing seeing as no competitors would be entering the market and you would ensure all possible
revenues. Water is also a finite resource which is limited in time, making it an increasingly scarce asset.
Scarce resources are by nature highly valued seeing as demand exceeds supply leading to higher price
equilibriums and consequently higher revenues. Additionally, with the rising global population, demand for
and consumption of water will continue increasing. For example, water used for human activities grew by
600% over the course of the 20th century. Therefore, water is an attractive investment as it would be a
reliable stream of revenue overtime. Moreover, decreasing water supply is also strengthened by the lack of
investments in adequate infrastructure. Especially in Global countries where many crises will arise as a result
of too modest investments. But such events can be prevented as the benefit-cost ratios for investments in
water sanitation services have been reported to be as high as 7 to 1 in Global South countries. Investments
are a solution thus a solution, but they need to outstrip the current flows. Hutton and Varughese estimated
in 2016 that the present value of the additional investments needed until 2030 to achieve SDG6, which
corresponds to universal and equitable access to save water for all, is equivalent to 1.7 trillions USD. This
corresponds to about three times the current investment levels. As a result, treating water as an asset could
encourage companies and different parties to address the growing water crisis by offering long-term
investment opportunities. In fact, for investors, water combines competitive investments, serving the
common good as well as delivering measurable positive impact. Finally, investments related to water will
enable investors to realize capital appreciation and sustainable long term dividends with a rather low amount
of risk and availability.
1- A new introduction to water
2- Products available to invest in water
3- Theory in application
4- Trends and future projections
5- Geographical Distribution
6- Continuity; roles and future developments of the industry
