Investing in Water | Sustainability Opportunities

Overview of Investing in Water:

Despite being an essential resource that plays a significant role in economic and environmental stability, water receives less than 1% of total climate-tech investment (Siôn Geschwind, 2023). This investment gap persists even though water holds an economic-use value of $58 trillion (WWF 2021), and water-related opportunities are valued at $436 billion, with the water and wastewater treatment market alone being worth $301.77 billion (CDP, 2022; CDP, 2023). Despite the immense market potential highlighted by these figures, water remains a niche sector due to limited awareness, stringent regulations, and the lack of a well-established investment market

As a result, water remains overlooked by impact investors, despite its critical role in human health and sustainability. The need for investment is a strong priority, given that access to clean water and sanitation remains a challenge for billions worldwide. In 2022, 2.2 billion people lacked access to drinking water, and 3.5 billion lacked proper sanitation services (United Nations, 2024). Additionally, a growing body of research underscores the economic risks of water stress—Ceres estimates that by 2050, $70 trillion of global GDP will be exposed to high water stress, underscoring the urgency of water-related solutions (Ceres, 2024).

Given these challenges, impact investors have a unique opportunity to drive change by supporting companies focused on sustainable water management. Identifying and investing in water ‘champions’ can help reduce the negative impact on biodiversity, enhance climate resilience, and ensure access to clean water for communities. Moreover, prioritizing investments in water infrastructure, conservation, and innovative technologies not only mitigates water risks but also unlocks long-term economic and environmental benefits—protecting ecosystems, combating water scarcity, and bolstering global climate adaptation efforts.

Innovation in Water Management: Identifying Growth Opportunities

Innovation in water treatment, management, and infrastructure is growing rapidly due to increased interest from tech companies in the water sector. Companies specializing in advanced filtration, wastewater treatment, smart water management, desalination, and disaster-mitigating infrastructure are at the forefront of this progress (European Patent Office, 2024). These advancements align with the United Nation’s Sustainable Development Goals (UNSDGs), particularly SDG 6, which aims for universal access to clean water and sanitation by 2030, and SDG 11, which focuses on building resilient, sustainable urban environments that address water-related hazards.

Sustainable Investment and Water-related Challenges

Developments in the market can also be viewed through the lens of increased corporate efforts. According to Inrate’s ESG data, companies have increased reporting on programs aimed at reducing water discharge and tracking water consumption. As seen in the graph below, more than 60% of the companies reported data on water consumption and more than 50% on programs to reduce discharge to water in 2023. Furthermore, companies addressing water discharge issues are improving water efficiency, which in turn leads to lower overall discharge.

Transition from traditional investing to philanthropy.

Figure 1: % of companies reporting on water-related programs

Companies in the disposal and recycling, nutrition, and housing sectors have increased their data collection on water consumption, enhancing transparency and data availability. As shown in the graph, 70% of nutrition companies had a score above 0 in 2023, indicating that 70% of nutrition companies conducted some reporting on this topic, whereas more than 50% of housing companies scored higher than 0 in 2023.

Figure 2: % of companies by sector that reported on water consumption

The following graph further supports this, showing that most companies, not just those in water sector-specific industries, report on water consumption. However, in the disposal and recycling sector, less than 50% of companies report this data. This may be because water consumption figures for wastewater management companies may be misleading, as water is a primary resource in their operations, making it difficult for companies to report this data accurately.

Figure 3: % of companies that publish data on water consumption by sector

While analyzing companies, Inrate’s sustainability framework considers several key metrics as positive contributors to water sustainability. These include increasing access to clean drinking water, fostering consumer awareness of environmental concerns, ensuring high water quality, and promoting efficient water use. When evaluating investment opportunities, it is essential to assess a company’s water conservation initiatives, pollution reduction efforts, and involvement in controversial environmental practices to help mitigate potential risks, especially given the nascent nature of the sector’s investment landscape.

Key Factors to Improve Water Sustainability

1) Technological Advancements

Technological progress in water purification, recycling, desalination, and smart water management systems plays a vital role in optimizing water usage, ensuring accessibility, and managing resources sustainably across various industries, from agriculture to household consumption. While tech involvement in the sector has grown significantly, attracting the attention of investors, up until now the focus has largely been on advancements in the quality and quantity of water rather than sanitation or environmental health.

2) Waste Management and Financial Assistance

Waste management is essential to maintaining water quality. Proper waste disposal and recycling initiatives help prevent water pollution. Similarly, the financial services sector, including financial assistance for water supplies, sanitation, sewage, and waste disposal, ensures that funding for critical infrastructure projects is directed toward sustainable water solutions.

3) Food Production’s Role in Water Efficiency

Food production and agriculture are the largest water consumers. Therefore, improving water efficiency in this sector is crucial. Implementing efficient irrigation systems, cultivating drought-resistant crops, and improving food processing techniques can drastically reduce water consumption and minimize waste. These practices not only support global water conservation but also ensure food security.

4) Property Development and Infrastructure for Water Resilience

Property development and the broader infrastructure sector are critical in managing water-related hazards. Sustainable urban development and infrastructure planning help mitigate flood risks, reduce urban runoff, and prevent contamination of water sources. Innovative solutions, such as green buildings, sustainable drainage systems, and advanced stormwater management, help adapt to climate challenges and reduce the severity of water-related disasters. Properly managed housing and infrastructure projects incorporating resilient, water-efficient designs can significantly enhance water management in urban environments.

A Comprehensive Approach to Water Sustainability

According to Morgan Stanley’s 2024 report on individual investor sentiment on sustainability, water solutions’ have been seen as the top global priority for investors in both the US and Europe, with the highest levels of interest, ranging from ‘very interested’ to ‘somewhat interested.’ The growing engagement from non-traditional players, including tech companies, climate-focused investors, and alternative energy firms, showcases this increased recognition of the growth potential in the water sector (Morgan Stanley, 2024).

These interconnected sectors underscore the importance of a holistic approach to water sustainability. From technological innovations and financial investments to efficient agricultural practices and resilient urban planning, various industries play a role in ensuring the sustainable management of water.

Addressing global water challenges requires collaboration among governments, businesses, and communities. By investing in innovative solutions and responsible water management practices, we can secure this invaluable resource for future generations and drive long-term economic and environmental benefits. .