Viewpoint: The case for investing in water

At first sight, water is boring. Even its chemical formula is simple. Like sunshine, there’s plenty of it, to the point where it can become a nuisance. Who’d expect a return from that? The more you get to know about water, the more dramatically the picture changes.

People and most animals and plants need water every day. Water is spread unequally, though. In early human history, people either settled in the vicinity of rivers or they led a nomadic life, following the water and avoiding the heat. Natural reserves, like aquifers cannot be filled and emptied at will. Rainfall is an important element and it cannot be controlled. Heat is the enemy of water. In a desert, it can become a precious commodity.

Water quality is another major issue. Most of the water on earth is either locked up in snow and ice in remote areas, or in oceans and seas, where it is too salty for consumption. What is readily available for consumption is easily polluted, but scarce enough that it must be re-cycled. Thus, almost all of the water on the planet must be treated before it can be consumed.

Making water fit for human consumption takes dedicated equipment, technology, time and energy as well as a collection and distribution system, managed and supervised by specialists.

The situation is a challenge for politicians and diplomats. Water routinely crosses borders and wrongheaded human intervention can lead to ecological disasters, such as the virtual draining of the Aral Sea for the benefit of cotton growing in Kazakhstan and Uzbekistan or to conflicts on water use, as is the case in the Mekong, Indus, Nile and Jordan basins, all rivers that are shared by countries that are not on friendly terms or with sharply conflicting water claims. Effective international co-operation, such as in the case of the Paraná River is rare.

Is there a case for investing in an area fraught with political and technological risk? There are several arguments for a positive answer. Re-cycling water in peaceful areas is a profitable business, producing an essential resource. It is not without risks, mainly leakage and pollution during transport, but these risks can be managed and checks can be automated. Unlike e.g. roads and schools, clean water is so highly appreciated that politicians ignore it at their immediate peril.

Water is so vital that it is a priority in developing countries. In India alone, there are 10 NGOs working on clean water. One of them, water.org, claims to have provided over 60 million people with access to safe water or sanitation through affordable financing it raises itself.

Water and sanitation have such a major effect on health that the UN guiding principles on business and human rights treat access to water as a human right, covered by principles 1 and 2. Interestingly, UN documents consider human rights as a state duty as well as a private enterprise responsibility. In practice, this means that water projects can be standalone or a flanking investment that covers the enterprise’s responsibilities.

As an example, think of breweries. They typically produce a large quantity of waste water. It is quite possible to recycle the water to the point where it can be safely disposed of or turned into potable water.

Moreover, water will play a role whether climate change action succeeds or fails. If it succeeds, growth in wealth will bring increased demand, in particular for sanitation. If it fails, increased temperatures will also increase demand for water, if only to offset increased vaporisation in installations and creatures.

All the elements are in place for a solid investment case. There is a dependable market for the product, which solves basic problems of sanitation, health and even survival.

Projects generally enjoy strong international and domestic support, diminishing political risk and contributing to mitigation of reputation risk. They contribute to a more responsible and durable portfolio. The demand for water project financing is well organised, ranging from private loans to ETFs. It may even be hard to explain if you are not invested in water.

Peter Kraneveld is an international pensions adviser at Prime BV