Water Scarcity: One of the Greatest Challenges of Our Time

• Around four billion people experience severe water scarcity at least once a month, according to the United Nations
• Water scarcity leads to conflict, disease and natural disasters
• Freshwater shortages create investment opportunities in water businesses, conservation and purification  
• Digitization and artificial intelligence help to reduce water usage for agriculture and irrigation purposes
• The S&P Global Water Index has outperformed global equity market from 2011 to August 2022

Water scarcity is one of the greatest challenges of our time.

Around 2.2 billion people do not have access to clean drinking water, according to the World Health Organization (WHO)[1]. Proper sanitation presents another problem, exposing roughly 2.4 billion people to diseases like dysentery, cholera, and hepatitis, among others.

Our climate is changing too. And with more than half of the word’s megacities (20 million or more inhabitants) dotting Asia’s coastlines[2], any change in precipitation, rainfall, sea levels, and other weather-related patterns will result in more floods and in the reverse scenario, drought. Water scarcity has not only led to climate change and disease, it has led, and is likely to lead, to conflict especially in areas where countries share a single water source.   

Water scarcity can also have spillover effects. It is a leading cause of migration after war, conflict, and unemployment but migrants from these areas tend to have less education and lower skills than average, posing challenges on the cities and towns that receive these migrants.

And the very poor cannot afford to migrate. All around the globe, scientists and researchers are working on solutions to reduce water scarcity, and this possibly leads to timelier and more transparent data. Satellite tracking software also helps predict weather, water, flood and flow across large geographical areas.

Acute water shortages are an issue for us to resolve now, not something that can be delayed any longer. The shortages have recently occurred in cities like Cape Town, South Africa; Chennai, India; São Paolo, Brazil; and Basra, Iraq. A 2021 analysis by the World Bank identified the Middle East and Northern Africa as the world’s most water scarce region with 60 percent of the population living in high water stress areas[3].  

But water shortages are just part of the issue.

Agriculture accounts for 70% of freshwater usage[4]. And there is a world to feed. The Russia-Ukraine conflict showed that commodities and energy shortages need to be addressed too, especially on the food front.

There are some solutions already being implemented. For example, data-driven soil-moisture sensors can reduce water consumption by up to 30% by allowing farmers to automatically water their crops and apply fertilizer only when it is necessary. Sensors can also inform farmers of conditions that might threaten their crops, so they can act in a timely way.

Today, there are more than 20,000 desalinization plants across 150 countries, according to the American Society of Mechanical Engineers[5]. Here, the challenge is two-fold: processing clean, fresh water and the energy it takes to turn it into the living water the world needs. In Saudi Arabia for example, around 10% of the country’s electricity is used for desalinization and, in Abu Dhabi, desalinization accounts for more than 22% of CO₂ emissions. There is a big incentive to use renewable energy in the production of fresh water.

In conclusion, water scarcity continues to rise in magnitude and we believe this challenge creates investable opportunities. Although not immune to the market volatility of early 2022, the S&P Global Water Index has outperformed the global equity market – as represented by the MSCI All-Country World Index – by over 1.5% a year – from 2011 to August 2022 (See Figure 1). The potential water investment opportunity set includes entities involved in the water business, its conservation, and its purification.