The UN predicts the world's population (currently seven billion) will exceed nine billion by 2050, needing more water for drinking and growing crops. Food is a massive water user - producing 1kg of potatoes requires 287 litres of water. A single apple or glass of wine needs more than 100 litres of water.
"Anyone who can solve the problems of water will be worthy of two Nobel prizes - one for peace and one for science." - John F. Kennedy.
As well as population growth, there are other important social trends to consider. In the developing world, workers continue their drift from rural to urban environments. This requires new water infrastructure and water use per person rises.
Economic progress makes us more intensive users of water. Pouring concrete to build cities, processing aluminium, making silicon chips - an endless list of processes requiring vast amounts of water. Add climate change with wet parts of the globe getting wetter and dry parts getting dryer and you have to ask where this is heading.
Thankfully, humanity has proven to be quite adaptable to change. Companies are developing a range of new ways to use water resources efficiently. This requires better ways to irrigate crops without waste, to recycle water, to capture run off and to sustainably manage a country's water assets.
An investor can benefit by investing in companies around the world generating revenue from the water industry - including industrial companies, utilities and technology companies. A good investment analogy is the gold rushes of the 1850s and 1860s in New Zealand, Australia and California. You did not want to be in the river panning for gold. One in a hundred of them would strike it big and the remainder worked hard for little reward. You wanted to invest in the industry supporting the gold miners - the suppliers of picks, shovels and tents. The same applies to water - think of investing in the wider water industry rather than owning rights to extract water from the ground.
There are two other good reasons not to invest directly in water rights. The first is that they are not liquid in the sense they can be difficult to buy and sell (as they are not traded on a market like shares). The second reason is that particularly in developing countries ownership of water rights is fraught with concerns about fairness and social equity. You cannot price a basic human need at a level people cannot afford it.
When investing in something good (water) you want to know that you are actually "doing good". This means screening out companies that have poor environmental records or also have interests in alcohol, tobacco or armaments (some tech and industrial companies can be involved in diverse industries). The companies that remain have a water focus and potential to benefit mankind and the planet.
Into the future, we face a scarcity of water supply and yet relentlessly growing demand. In short, there is a compelling investment case for water related companies.
Written by John Berry www.path.co.nz
Disclosure of interest: John is co-manager of the Pathfinder Global Water Fund, and is a fund manager, but does not give personal financial advice.
