Is the Planet Running Dry?
Turning the tide
Is the Planet Running Dry?
Wastelands and swathes of scorched earth seem like something out of a fictional dystopia, but it’s not all that far-fetched. In that, it’s already a reality.
It has transpired that places around the world have reached ‘peak water’ – that is, the rate of consumption of freshwater has exceeded available supply. And, far from being over, the situation is only set to get worse.
Some of the largest aquifers (sources of freshwater for millions) are drained at alarming rates, and with some nasty side effects: cities like Phoenix, Delhi and Las Vegas are sinking due to groundwater extraction while Mexico’s sprawling capital is collapsing in on itself as its water supply wastes away.1
Investing in the water sector is one way of tackling the looming water crisis. Catherine Cahill, a fund manager at KBI, focuses on what she calls ‘the five indisputable drivers of the water theme’: supply, demand, regulation, infrastructure and technology.
Apart from its devastating impact on societies and the planet – almost two thirds of the world's population experience severe water scarcity for at least one month each year2 – the global lack of water also has severe economic implications. ‘Water touches everything,’ she says. ‘Nothing functions without it - we can’t survive, there’s no substitute and it’s used in the creation of every single product you can think of.’3
Just as supply is dwindling, demand is rising, be it from a commercial, agricultural or individual perspective. The World Meteorological Organization estimated that the rate of water consumption doubled that of global population growth between 1900 and 19954. ‘Water is only becoming more important in the long term and we’ve yet to find a way to make sure everyone has access to it,’ Cahill says.
One way to address the supply/demand issues is to get authorities involved. ‘Regulation is increasing all the time,’ Cahill says. ‘Local governments are forcing companies to become more self-sufficient in terms of how they think about water. They now need to also take resiliency into account and make sure that wastewater is treated to an acceptable standard.’5
Water infrastructure has several problems. With millions of pipes in urgent need of repair, for example, there has never been more need for policy support. In the US alone, water lost through leaking or decrepit pipes every day equals the amount it would take to fill 9,000 swimming pools.6 That is why water will be a significant target of global spending in the next few years, Cahill believes. ‘If anything, infrastructure issues have become more pressing over the last decade.’7
The last of Cahill’s five indisputable drivers is also the most interesting one for investors. After all, companies that can provide a solution to the growing water crisis have the potential to deliver long-term returns. Or, as Cahill puts it, ‘The companies we invest in tend to grow their earnings faster over the longer term. This propels outperformance over time versus the broader market.’8
1 https://www.npr.org/2018/09/14/647601623/mexico-city-keeps-sinking-as-its-water-supply-wastes-away?t=1660030500918, 14/9/2018
3 Interview with Catherine Cahill from 23/3/2022; see transcript
5 Interview with Catherine Cahill from 23/3/2022; see transcript
7 Interview with Catherine Cahill from 23/3/2022; see transcript
8 Interview with Catherine Cahill from 23/3/2022; see transcript
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 3 October 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
Date of first use: 17 October 2022
Doc ID # 2330360