Water: Threats & Opportunities

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As we live through this hot and wet summer in the Northeast, some of us have developed a kind of love-hate relationship with water. We appreciate that it is a critical resource and that we are blessed with abundance relative to other areas but have had a bit too much of a good thing lately. Water is an essential element of our ecosystem, commerce and life itself but is rapidly becoming a commodity that’s even scarcer than oil. Population growth, rising living standards in developing countries, industrial expansion and aging infrastructure have raised water supply concerns throughout the world and spawned a wide range of initiatives in response.

The United Nations predicts that by 2050, two-thirds of the world will be “water-stressed” and that over 2 billion people will be living in countries grappling with water scarcity. Nearly all nations will need to contend with water quality and distribution issues in the near future though. Prominent consulting firm Booz Allen Hamilton estimates that $22 trillion will need to be invested in infrastructure over the next two decades just to meet the demand for clean water. Governments are now realizing that they need to take action and have begun to earmark significant dollars for these projects but private financing and investment must also play a critical role.

Water is a finite and fragile resource with no substitute. Only about 3% of the world’s water is fresh and of that, only about 1% is accessible by people. Many areas in the U.S. and abroad are consuming water faster than the aquifers can recharge themselves. Around 70% of fresh water is now being used to produce food for our ever-growing population. Pollution, contamination and climate change pose the biggest threats to our water supply. Two million tons of sewage and other waste drain into our water supply every day. Some sources estimate that 80% of sewage in developing countries flows untreated into bodies of water. While the health risks of direct contact with waste water are fairly apparent, a less obvious threat involves indirect contact. As much as 10% of the world’s population eats food grown with contaminated waste water which also poses serious health risks. Unsafe water causes more deaths each year than acts of violence (including war casualties). Put simply, management of water supplies and distribution is critical to the long-term well-being of all communities.

One of the other key challenges is that much of the world’s water supply isn’t concentrated in the most densely populated areas. For example, Asia has 60% of the world’s population but only 36% of the water supply. China in particular has 21% of the population with only 7% of the water supply. In Africa, people with agricultural livelihoods must compete for water with the global oil, mining and timber industries. Closer to home, dramatic population growth in the U.S. Southwest has greatly stressed water supplies and infrastructure.

Recognizing water’s essential role in providing an economic and social foundation, two local non-profit organizations have been drilling wells in impoverished areas which lack the resources to do so. Karen Flewelling’s “Drilling for Hope” (www.drillingforhope.org) and Kevin Bailey’s “The Sky is not Limited” (www.theskyisnotlimited.org) are both Capital Region- based charities that have conducted many successful projects in Africa, Asia and Central America. They’ve seen firsthand that once a community has clean water, they have the ability to dramatically enhance the quality of life of its people and set the stage for future growth. I’m sure that both of these organizations would welcome your interest and support.

Aging infrastructure, ineffective distribution, over-harvesting of groundwater and corn-based ethanol production pose additional threats to our global water supply. Faced with these challenges, a number of public and private sector solutions are emerging. With the collection, treatment, usage, and distribution of water for human use, there are three key sub- sectors—water and wastewater utilities, water infrastructure, and water technologies.

There are a number of investment opportunities that give individuals the means to participate in this sector and potentially earn a profit on their holdings. Investing in any industry sector poses additional risks due to reduced diversification so potential investors should carefully consider whether this is appropriate for their circumstances. Before investing, always consult the prospectus for specifics re: fees, risks and other considerations. All of this being said, declining freshwater supplies, exploding demand, an increasingly favorable regulatory environment, and technological advances all underscore the strong growth potential of water companies.

You may be wondering how bottled water companies fit into all of this. In my view, these companies exacerbate water scarcity and distribution problems by depleting local groundwater or drawing down municipal water supplies. The packaging and re-selling of bottled water uses processes that are associated with a number of problematic environmental issues. For example, the amount of gasoline used to produce and transport bottled water in the United States alone could fuel a million cars for a year. If a soda machine suddenly charged $1,900 for a bottle of cola instead of $1, you’d certainly walk away. But millions of people pay that same premium or more every day for what is essentially tap water when they buy a liter of bottled water. With these factors in mind, I don’t believe that investing in bottled water companies is a sustainable or responsible investment. We also have the opportunity as consumers to avoid buying bottled water whenever possible and instead use re-fillable containers. Stay cool and make sure to take a moment to savor your next glass of cold, fresh water.

Harry Moran helps socially conscious investors define and achieve their highest goals by aligning their money with their values. A 26-year veteran of the financial services profession, Mr. Moran has held the Certified Financial Planner® designation since 1991. He is a member of First Affirmative Financial Network, a national professional organization dedicated to meeting the needs of the socially conscious investing community, and a member of the Impact Investing Division of Portfolio Resources Advisor Group, a registered investment adviser. Mr. Moran can be reached directly at Sustainable Wealth Advisors at hmoran@prg- group.net or 518-450-1755.

Mention of specific securities, funds, or companies should not be considered an offer or a recommendation to buy or sell the security, fund, or company. To determine the suitability of any particular investment, please consult with your investment adviser. Remember, past performance is no guarantee of future results and no investment strategy can assure success. The opinions expressed are those of the author and may change without notice. Securities offered through Portfolio Resources Group, Inc., member FINRA, SIPC, MSRB, SIFMA.

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