No creature can survive without water. As climate change affects weather patterns and population growth continues, mankind will rely on new technologies to ensure water is accessible to everyone.
Our biggest issue is supply. Only 1.2% of the Earth’s water is fresh and drinkable immediately. The rest is either undrinkable salt water in our oceans, buried in our soil, or floating around in the atmosphere. The tiny amount of clean water we do have is being consistently collected, purified, and distributed to populations throughout the world.
Water usage has also increased by one percent each year since 1930, and demand is set to soar still. Consequently, we need new ways to create it, capture it, and store it cleanly.
This is a huge ask, so it should not surprise you to hear the story is as much one of failure as it is success. Around 800,000 people die each year from disease attributed to drinking contaminated water, according to the World Health Organisation (WHO). The situation is set to worsen, as climate change continues to cause surface water supplies to dry up, pushing water-starved populations towards urbanised areas.
The UK is lucky: 99% of the population has access to a ready supply of clean water. Others are not so fortunate. According to a UN report from 2019, 785 million people across the world lack access to a basic drinking service. Around 145 million rely on lakes, dams, creeks and rivers to obtain water.
Many of these open-water sources are unclean, as they are used for irrigation, waste-disposal and cleaning. Nearly two billion people drink water contaminated with faeces or pollutants every day, WHO says, leading to life-threatening illness and death.
WHO’s longer-term outlook does not make for rosy reading. Over half of the global population – or four billion people – will live in ‘water-stressed’ areas due to globalisation and climate change by 2030, it says. That is just nine years from now.
The good news is that desalination plants, smart meters, pumped hydropower, and deep underground reservoirs, have helped water-starved communities in Bangladesh, parts of India and the middle-east address the issue. New capture and storage methods have also helped governments collect and store rainfall and desalinated water.
Investors are also leading the charge to improve water supplies by backing companies that provide clean water technologies. One way they are doing this is with rain.
England is no stranger to wet weather, and its capital gets an average annual rainfall of 690 millimeters. To harness this phenomenon, the government has lured private companies to invest in capturing facilities to store and supply rainwater run-off to the general population. These investments fund basic infrastructure projects like piping and pumps.
Other areas and nations do not fare so well, despite rainfall. The continent of Africa receives around 1,000 millimeters of rain each year, Bangladesh gets 1,500 millimeters, while the Indian city of Chennai is hammered by an average of 1,400 millimeters per annum. How come the UK captures, stores and supplies water better than other countries?
Simply put, the UK is an attractive investment for the private sector. Its clean water supply and pricing are heavily regulated, meaning investors can expect more certain returns. In addition, as companies improve water storage and supply facilities, the more lucrative investments become.
Developing countries, meanwhile, cannot afford to maintain or repair water infrastructure projects without assistance, and if it does not come in the form of capital investment, they rely on United Nations grants or charitable infrastructure projects.
Legal & General Investment Management (LGIM) launched its Clean Water exchange traded fund (ETF) in 2019. The fund tracks the Solactive Clean Water Index NTR and invests in companies actively engaged in the international clean water industry through the provision of technological, digital, engineering, utility and other services.
Although the LGIM clean water ETF has only been active for just over a year, it has returned 38.9% compared with 26% returned by the S&P Global Water Index benchmark over the past twelve months, according to Morningstar.
Aanand Venkatramanan, LGIM’s head of ETF strategies, says the UK government has used private backers to invest heavily in global water capture and storage technologies in recent years. Work has taken place in both developed and developing economies, although the latter is a harder nut to crack.
‘Because some harvesting systems are not designed to capture every drop, a lot of rain water simply gets washed into the ocean and therefore isn’t conserved,’ he says.
‘In such parts of the world, there is a greater need to build better infrastructure to conserve rain water while simultaneously building new desalination capacity as well.’
The answer, he adds, is to make investment in developing nations’ nascent water technology more attractive.
‘There needs to be concessionary terms to get those private investors in,’ he says.
‘They need to give these private backers a roadmap for their investment. That comes from consistent policy on infrastructure and the pricing of water. If countries don’t do that, they will not get private investment, which hurts water storage, supply and the public.’
‘There has to be lots of [government] policy support to attract private investment. Without that investment, we can’t meet our goals.’
Making the cut
LGIM’s Clean Water ETF is aligned with the UN Sustainable Development goals, and the fund’s largest allocation is to 24 global technology and digital service providers, which invest in technologies to improve countries’ capture, storage and water efficiency projects.
Venkatramanan says that the fund solely invests in companies that improve efficiencies linked to clean water supply, such as using clean energy to power desalination plans and developing improved technology to monitor leaks to stop water wastage.
‘From an investment management point of view, I have to speak with these companies to ensure they are implementing efficiencies in their water storage and processing capabilities,’ he says.
‘One example is water leakage from storage and supply facilities. We need to conserve this precious resource, and ensure there is consistent supply through optimum efficiencies led by technology. Over 50% of our portfolio is made up of technological and digital solutions to water storage and supply. The technology to improve clean water supply isn’t IT-based, it’s desalination plants, sensors, meters, water quality monitors. All of these come under our watch.’
Everything comes at a cost though.
‘The big question with desalination plants is: how do we make them more efficient?’ he says.
‘For every megawatt of power used to desalinate water, we need to ensure the water output is maximised, and we need to reduce the operational expenses at the same time.’
As such, Venkatramanan and his team of independent researchers spend a lot of time checking whether companies are achieving the fund’s goals. Do they use green power to pump water? Do they use leak reduction technology, and are they using smart meters to ensure water is used where it is most needed?
These rules mean that the ETF avoids investing in most utility companies.
‘Increased water consumption in areas such as farming, industry, and energy is an issue,’ he explains.
‘You cater for these companies that provide this water [to attract investment] but you also have to ensure those companies are not then polluting the water. We have to research what technology these companies are using, and what they’re using to provide clean, cheaper water.
‘We don’t just focus on utility companies and conglomerates. For us to take them on [invest], a utility company needs to be “ultra-pure” with 90% of their revenue coming from water-related activities.’
What a waste
The price of water is the elephant in the room. According to a recent report published by the Organisation for Economic Co-operation and Development (OECD), putting the right price on water can encourage people to waste less, pollute less, and attract more private companies to invest in water infrastructure.
Tariffs on water supply and wastage vary from country to country, and, typically, only first-world countries publish what their water costs, or what they subsidise.
Agriculture is the biggest user of clean water in the world, accounting for 70% of usage. In an OECD study from 2007, Africa, China, India and South-East Asia were the highest agricultural water users between 2000 and 2007. They are expected to use even more by 2050.
The issue with agricultural water usage is waste. In addition, irrigation and industrial water can ruin clean water supplies if it is not disposed of or recycled properly.
For wealthy countries where water prices are high, like Australia, the UK and France, this is not a huge issue as they have a regulated system for subsidising water usage and supply.
But for countries in Africa, the sub-continent and parts of Asia that either do not charge for water or charge far less than their rich counterparts, there is little appetite to stop wastage.
That is because governments that do not value water by applying pricing structures, or subsidies for waste reductions do not tend to have an attractive investment for private investors.
‘One of the problems with ensuring people have access to water is that governments always suppress the price,’ Venkatramanan says.
‘There is a huge subsidy for production costs world-wide versus what the consumer pays and that means governments can only provide it for basic, bare-minimum needs for their populations. If you want to go beyond that you want to have healthy water for all.
‘You will not get private players investing in infrastructure projects unless there is clarity on pricing. You can’t tell them to put in billions and then tell them they will make a loss for the rest of their lives. Countries need to have some clarity on pricing and how they will recoup those investments at a reasonable margin.’
Venkatramanan is now pushing companies to invest in infrastructure in countries that do not subsidise water wastage, where acute supply issues dog the population because of climate change.
‘[Better] technology will play an important role for countries that don’t yet have it. We invest in the technology and companies that invest in those technologies and they will have an impact on those countries.’
Clean and green
Desalination plants have been around for decades. They help ensure people in water-starved, drought-ridden areas can turn ocean salt water into clean, usable supplies. But they have drawbacks.
According to thinktank The Water Project, desalination plants overuse dwindling water resources. On top of this, they use a huge amount of energy to pump and then process water.
The Water Project says that 70% of desalination plants are located in the Middle East, and the vast majority run on fossil fuels. Although the population gets clean water, the plants end up polluting sea water and clean water catchments if their waste is not disposed of properly.
Venkatramanan’s strategy here is one of engagement rather than exclusion. The fund invests in desalination plants in the region, though he wants to move the companies away from fossil fuels towards clean energy.
‘90% of the clean water supply in the Middle East is from desalination plants,’ he says.
‘We need to switch them over to cleaner sources of energy, so we invest in clean renewable power-led technology, which is better for the environment.
‘Any improvements from these companies is welcome. But we also make sure their wastage levels improve, their membranes and self-cleaning technology lasts longer, and [monitor] how their power is consumed.’
An example of this approach is the fund’s largest holding, US-based Energy Recovery Inc, which makes up 2.2% of the portfolio. The company designs and develops technology that reduces the energy consumption incurred by clean water production.
One piece of technology it has developed, the turbocharger hydraulic turbine engine, reduces the reliance of desalination plants on fossil-fuels. The business says this alone can reduce carbon dioxide emissions by approximately 4.7 million tons per year.
‘Water risk is ranked as the top three risks in the world economy by The World Economic Forum, which is higher than nuclear war,’ Venkatramanan says.
‘We need to make water storage and supply more efficient. Our goal is to improve pricing, storage, efficiencies and distribution of clean water through our investment approach.’
With enough money behind it, water technology has role to play in the wider fight against climate change.