By Deepshikha Singh, Deputy Head of La Française Sustainable Investment Research & Head of Stewardship, La Française AM
At the United Nations Water Conference in 1977, the first Action Plan for addressing the water crisis was created, recognizing that, “all peoples, whatever their stage of development and social and economic conditions, have the right to have access to drinking water in quantities and of a quality equal to their basic needs.”
Almost five decades later, we are nowhere close to ascertaining this basic human right. According to the United Nations University Institute for Water, Environment, and Health (the Think Tank on Water), approximately 72% of people worldwide live in water-insecure countries, c. 2bn people do not have access to clean and safe drinking water and approximately 3.6bn people (46% of the world’s population) lack adequate sanitation services. Many of these issues are attributed to unprecedented population growth in many countries, but there are other reasons. Most notably, our consumption patterns have become highly water intensive - everything from the production of clothing to harvesting crops for food to the manufacturing of electronics requires an immense amount of water.
Water on Earth is scarce – despite 70% of our planet’s surface being covered by water, only 1% of it is potable. Additionally, water is not an easily renewable resource – replenishing ground water can take decades, if not centuries. Water availability is further compromised by extreme weather events, pollution and aging infrastructure. Water contamination from chemicals, drugs, agricultural run-off, microplastics and ‘forever chemicals’ add to water insecurity across the world. This affects not only people and society but our investee companies as well. The Panama Canal backlog created by historic droughts and low water levels raised costs for countless firms in 2023. Drought is the third highest risk identified in India, and 59% of Indian firms reported as being affected . Companies are exposed to water-related physical climate risks in one way or another - through their own operations or their supply chains.
The water sector provides public and private benefits. However, many of these benefits cannot be easily monetized, thus limiting revenue streams from investments. The water sector requires a considerable amount of financing, with estimates ranging from $182bn to $664bn annually (2019). This gap includes various areas such as water supply and sanitation ($116bn to $229bn per year), flood protection ($23bn to $335bn per year) and irrigation ($43bnto $100bn per year), as well as funding for the implementation of water resources management. Our existing water infrastructure is not well adapted as necessary investments have been neglected for decades. Utility companies report that one out of every six gallons of water is lost between the water treatment plant and the end customer – termed as ‘non-revenue water’. Without investments and proper water governance, there is likely to be increased competition for water between public and private sectors and an escalation of water crises of various kinds, triggering emergencies in a range of water-dependent sectors. Regulatory barriers can also limit innovation and prevent the adoption of new technologies or approaches.
Nevertheless, there is still hope. Co-operation and innovation are key – between companies, investors, communities and countries. The development of sustainable financing models can be enabled by public sector backing. For the sustainable management of water resources, in addition to constructing new infrastructure, investments are necessary to maintain, operate and enhance the resilience of current facilities (especially ageing infrastructure). In addition, effective incentives and regulation can redirect funding towards climate-smart, resilient and nature-positive investments. We need public and private finance to work hand in hand. In Ghana, different actors, including the private sector, non-governmental organizations, charities and development partners, financed the increase of coverage of safely managed drinking water services by 28 percentage points from 2000 to 2020, totalling 41% of the population in 2020 . At the global level, it is also necessary for increased data sharing and improved interoperability of all Sustainable Development Goal global databases. On the industry level, CEO Water Mandate brings together 240+ companies to share good practices and forge partnerships to address urgent water challenges related to scarcity, quality, governance and access to water and sanitation.
The water sector sits comfortably at the intersection of climate, nature and social themes creating opportunities for investments for all sustainability-focused investors. However, most water investments till now have been focussed on water utilities which address the public demand/need for water. But there are many well established companies as well as new start-ups that are now working to solve water security issues using innovative technology and solutions. According to some analysts, the global addressable market opportunity for the water and wastewater industry is estimated between $700 and $800bn. In-sourced OEM (original equipment manufacturers) and Construction/EPC (engineering, procurement & construction) cover over half of the market while the remaining is covered by enablers, including general equipment, such as pumps, valves and meters, outsourced operations & maintenance services, water treatment and various parts & consumables. Earth observation technologies, including satellites and drones, present a transformative opportunity for both the public and private sectors to enhance water resources management. Governments can also use innovative methods, such as offering tax reductions for nature-based solutions and conservation spaces or payments for ecosystem services to preserve water-critical green infrastructure, making it lucrative for private finance to kick in.
The theme of World Water Day 2024 is ‘Water for Peace’. On this World Water Day, public and private sectors need to come together to govern, innovate and finance a water resilient future in which people and businesses can thrive in peace and harmony.
This commentary is provided for informational and educational purposes only. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, 326 817 467 R.C.S. Paris, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.