Decoder: Investing in water isn’t money down the drain

Turn on the tap, and the world’s most valuable commodity pours out. Maybe it’s time to invest in water — to line our pockets and protect our planet.

Access to clean water is something that those living in most parts of the developed world rarely think about. Potable water for drinking or food preparation is easily available out of home faucets and affordable to buy at local markets.

But millions of people do not have easy access to clean water and sanitation, and then suffer from curable diseases. Back in 1992, an International Conference on Water and the Environment was held in Dublin, Ireland, and adopted a Dublin Statement declaring water to be a “finite and vulnerable resource.”

Meanwhile, drought and sweltering temperatures due to climate change are reducing crop yields and hindering shipping as rivers hit record-low levels.

A booming global population that recently topped eight billion has exacerbated the water crisis since water is needed to sustain life. The 2030 Water Resources Group was launched at the World Economic Forum meeting in 2008 to close the gap between global water demand and supply by 2030.

Water is one of the most important and scarcest commodities in the world. It is also tradable as companies seek to make money by purifying and distributing it.

Investors can push polluters towards water conservation.

One way to get a sense of the value water has on the stock market is to compare stock market indexes, which are collections of stocks meant to represent a portion of the overall market that gives investors an idea of the value of that sector.

The S&P Global Water Index, which tracks 50 companies involved in water-related businesses, has modestly outperformed the S&P Global Broad Market Index (BMI) since its launch in 2001. The 10-year return annualized on the S&P Global Water Index as of 30 December 2022, was just over 7.8% versus 5.9% for the S&P Global BMI.

Boston-based Ceres, a nonprofit organization that advocates for sustainability, uses the power of investments in a different way. Ceres works with major investors globally to pressure companies that are the biggest water users or polluters to become better stewards of water.

One way to invest in water is to buy stock in a water company or water utility, such as IDEX Corp., Xylem Inc., Danaher Corp., Ecolab, Roper Industries, Pentair Plc, Ferguson Plc or American Water Works Co. Inc.

Another investment method is to buy into a basket of stocks known as an exchange traded fund (ETF). Water funds are a fraction of the ETF world and while they don’t necessarily yield stunning financial returns, they are a way to buy a stake in a lot of companies that are trying to get clean water to where it is needed. Water ETFs include First Trust Water, Calvert Global Water Fund A Shares, Invesco Water Resources, Invesco S&P Global Water Index and Ecofin Global Water.

Jon Hale, the global head of sustainability research at Morningstar Inc., a Chicago-based investment research firm, answered the following questions on water investment:

Of all the socially responsible investment opportunities, why should we invest in water?

The case for investing in water is driven by the challenge to provide enough fresh water to meet the growing global demand for clean water against a backdrop of climate change.

A growing population as well as improving living standards in developing countries creates demand for safe drinking water, but also increases demand for water in agriculture and manufacturing, including, for example, the production of semiconductor chips.

With demand increasing, that creates investment opportunities in utilities that provide water infrastructure — how to convey water to processing plants and businesses and homes — and technology used in the process to make water clean and ensure it is not leaking. To look for the most efficient way to use water and not waste it.

Can an investment in water, whether through a specific company, utility or water fund, help in the wider global goal to get potable water to where it is needed?

Investing in water infrastructure and technology can help. An investor’s specific investment in a company such as American Water Works might not directly help on access to clean water in a developing country, but would help in the development of better technology.

To ensure the availability of water and sanitation for all requires all hands on deck — governments and NGOs (non-governmental agencies), not just companies.

But you can invest in ways that contribute to the global effort — investing in technology, for example, that could be used to improve access to safe drinking water in a developing country.

Do you think we can reverse decades of underinvestment in water-related infrastructure? Specifically, some people think water crises affect only Africa and other places that suffer from periodic famine, rather than in places like Flint, Michigan in the United States where failure to invest in infrastructure resulted in dangerously high levels of lead in the supply of drinking water. 

We need to see more government and public policy support to address these problems. The infrastructure bill that passed in the first year of the Biden administration will help here in the United States. Flint, Michigan’s ageing water system, and a lot of other areas in this country, need basic investment in infrastructure that is more than a century old, in some cases.

Better metering technology can help reduce leakage and lead to more efficient use of water. But it’s a big job.

Three questions to consider:

1. Why is it important to invest in water?
2. What are the biggest users of clean water in your community?
3. What can you do at home to save precious water?

Betty Wong was global managing editor of Reuters from 2008 to 2011, with 29 years of experience at the Wall Street Journal and Reuters. She covered white collar crime on Wall Street from Ivan Boesky to Michael Milken in the 1980s, led U.S. corporate news coverage from the dot-com bubble to rubble and was global equities editor for Reuters.