Market Insight by Nicolas Pelletier - Water access: critical and unavoidable investments

Global warming is exacerbating water stress. The UN projects that by 2030, at least one in four people will be affected by recurring water shortages. This issue will inevitably cause conflicts, wars, and exodus and migration by extension, with all of the social consequences those entail. 

The investments required to address this issue are colossal, which is why the private and financial sectors have a duty to take on part of the responsibility and provide innovative financial solutions. 

What investments are required?

The sixth UN Sustainable Development Goal (SDG) is to “ensure availability and sustainable management of water and sanitation for all.” Achieving this goal by 2030 requires investment in essential infrastructures, including water treatment facilities, wastewater treatment and desalination plants, water kiosks, farm irrigation systems and better maintenance for water supply networks. These investments will provide basic services to over 800 million people currently living without them and improve access to water services for over two billion people.

Investments can be made directly or through funds comprised of listed companies that contribute to this goal. One such example is Xylem a US-based water-management company with a turnover in 2020 of over $5 billion and a market capitalisation of $18 billion. Xylem's market capitalisation grew more than 28% in 2020, while many impact investment funds partially invested in listed corporations with ties to the water sector made gains of over 15% in 2020. 

Another option would be to invest in unlisted companies that offer high-impact products and services such as Swiss Fresh Water, which manufactures kiosks that purify water through reverse osmosis . These kiosks are sold to entrepreneurs living in places where the need is greatest, such as Senegal. It is easier to invest in these kinds of businesses through private debt or private equity funds however, these kinds of investments are subject to two problems—risk and liquidity.