Investment in water security alleviates poverty and keeps investors in the green

Source: Business Matters
Date: April 6, 2021

On World Water Day this year, UNICEF published a report entitled 'Water Security for All', amplifying the urgent need to secure universal access to potable water sources and protect the world's dwindling water supplies.

The paper is an appeal to "reimagine our approach to water: from supply to usage, infrastructure, governance and management". Some in the private sector, such as BNP Paribas, have echoed this call, recognising the financial incentive to roll back the chronic water crisis.

In fact, a growing body of research demonstrates that investment in water's value chain benefits everyone involved. But skeptics still see the use of private capital to finance sustainable water management and alleviate water stress as a public relations exercise and overlook its potential to be a profitable, socially conscious enterprise. All the same, the financial decisions of some forward-thinking firms and investors offer a blueprint for how more companies can get on board.

Making both water and funding flow

Research by the Organisation for Economic Co-operation and Development (OECD) highlights that, despite the "strong economic case for water-related investment", current financing in this field consistently fails to match demand. Given that freshwater scarcity is not limited to one region and will become increasingly widespread as the planet warms, the need for this kind of financing is on the rise, and with it, the potential benefits for both investors and impacted communities.

An increasing number of water portfolios, including equity traded funds (ETFs), finance initiatives which assess, treat, and distribute clean water to those in need. The dividends attest to the benefits in store, with the profits of those who invested in water funds five years ago growing by 13% in the time since. As such, these funds offer far better interest rates than the market average, contributing to the resolution of one of mankind's most urgent problems. But traditional funds are by no means the only water infrastructure financing channels available to investors who recognise the possibilities of this sector.

Private companies like Danone put stakeholders first

Some forward-thinking companies even incorporate the promotion of water security into their mission statements. French multinational Danone has promoted innovative business solutions to help communities manage water resources and get access to clean water for over ten years now. For Franck Riboud, the honorary chairman of Danone, "it's in a company's best interests to take good care of its economic and social environment, meaning its suppliers, its employees, its customers or the places where it operates."

In line with this philosophy, the French brand's shareholders have invested over €197 million into the company's 'Ecosystem Fund', financing projects in collaboration with not-for-profit partners. One beneficiary is the Rejoso watershed in Indonesia's Pasuruan region, which suffers erosion, lack of water regulation, and unmanaged community drilling. Then there are the sustainable farms across France, whose practices Danone supports in order to reduce nitrates in agriculture and protect the long-term quality of the groundwater.

Other corporations should follow suit, leveraging their economic weight to improve the way the world manages and delivers water. Especially considering that 68% of the Global 500 companies already viewed water-related impacts as a risk to their businesses as far back as 2012.

Water-conscious start-ups

But it is not just corporate giants taking responsibility for the management of the world's water crisis. Newer, smaller businesses are also rethinking how best to protect precious freshwater resources, which only constitutes 3% of all water on Earth. Houston-based company Sourcewater is just one example of those reducing the drain on the world's freshwater, by way of innovative solutions such as transforming undrinkable wastewater into a valuable commodity.

This start-up seeks to reverse the commonplace usage of trillions of litres of freshwater in operations such as hydraulic fracking and drilling operations. Sourcewater instead proposes reusing the 200 billion litres of wastewater produced in the extraction of oil and shale gas every year, which is otherwise pumped underground into disposal wells. The company transports this polluted, super-saline water to be recycled by industries that need water, and in doing so turns a tidy profit.

Investing at the source

Other organisations have pursued direct investment in individuals to make an impact. In 2017, WaterEquity, the investment arm of actor Matt Damon's charity Water.org, began offering loans to those unable to afford household water infrastructure, where other financial institutions baulked at the low yields. Damon's initiative is "nudging the markets towards this community of the world's poor", as he elucidated in a podcast for World Water Day. The loans that WaterEquity offer have so far installed water equipment into the homes of 1.8 million families.

Such loans give agency to those without running water to solve their own problems, and given that over two billion people lack drinking water in their homes – and more than twice that live without safe sanitation infrastructure – demand is at an all-time high for this kind of financing.

To bring the long running global water crisis to a close, the private sector must rally behind UNESCO's appeal to cooperate on water security. Sound and diverse investment in the water marketplace can reverse the course of the crisis, all while boosting the public image of the companies involved and generating significant returns for investors and communities. While the needs are great, they also represent manifold opportunities for engagement.