How to thrive without water? The challenge of water scarcity

Poet W. H. Auden once wrote: “Thousands have lived without love, not one without water.”

World Water Week 2023 draws attention to the need for innovation at a time of unprecedented challenges. It highlights the importance of water as a building block of our world and, as Vontobel’s impact investing strategies do, advocates for access to clean and safe water.

Water is life

Despite water being abundant on our planet, many parts of the world are experiencing water stress. While 70%¹ of the Earth’s surface is water, most of this is salt water. Less than 1% of the planet’s freshwater supply is suitable for agriculture and industry, with pollution having rendered an even smaller amount suitable for human consumption. To complicate matters further, only approximately one-fifth of the water suitable for human consumption is accessible, amounting to less than 3% of the Earth’s total water resource.

Water plays a driving role in our economies. Its consumption is indispensable in today’s world—we use and require water in every aspect of our daily lives. Of the world’s freshwater, about 70% is used for agriculture, roughly 18% for industrial use, and 12% for domestic (household) consumption. Think of the water required to produce concrete or consumed in semiconductor facilities— without this resource, agriculture, households, offices, and industry cannot function. And we also consume it in huge volumes: semiconductor gigafactories consume water at a similar rate to a city with a population of 150,000 or more.

Economic and geopolitical implications

Given the limited supply of freshwater and our current consumption rates, water scarcity is a real issue. A recent study² highlights that approximately 3.8 billion people currently experience water scarcity for at least one month per year. The 2018 edition of the UN’s World Water Development Report estimates that nearly six billion people will suffer from such a clean water scarcity by 2050.

Without the help of natural gravity, water is a resource that is difficult to transport over long distances as we consume so much water on a daily basis.

“While bottled drinking water is traded and shipped around the world, agricultural and industrial sectors require significant volumes of water that can only be met by pipelines or water canals used to redirect greater amounts of water,” said Reto Cueni, Vontobel’s Chief Economist. “These difficulties in trade, together with the geographical importance of lakes, rivers, and underlying water basins, mean that water is a resource that is a geopolitically sensitive subject. Water can trigger fierce conflicts among neighbouring countries.”

Figure 1 displays the transboundary river basins and the current conflict zones due to water disputes. Another consideration is the comparison of a country’s share of the world’s population with its share of global water resources (see figure 2). This highlights that, apart from the global issue of water scarcity, the distribution of water—regions with an abundant supply versus those that are drier—is a key geopolitical topic.

This is exacerbated by climate change, which appears likely to impact temporal discrepancies between periods of rainfall and dry periods. Spatial differences in rainfall and droughts are also likely to be impacted³. The most vulnerable regions are West and East Africa, the northern Middle East, and the areas bordering Central, East, and South Asia, according to a United Nations (2022) report⁴. This last region entails potential future water basin conflicts involving globally important powers such as India, Pakistan, China, and Russia.

Innovating for change

Run every year since 1991 by the Stockholm International Water Institute, World Water Week believes that tackling the greatest challenges of our time often starts with water. The theme for 2023, Seeds of Change: Innovative Solutions for a Water-Wise World, invites us to rethink how we manage water. It also demonstrates how, in times of great challenge, collaboration among diverse thinkers can lead to much needed innovation. Which ideas, innovations, and governance systems will we need in a more unstable and water-scarce world?

Bridging the gaps toward such change requires innovation, and this can come with a massive price tag. As capital allocators, investment firms have a clear role to play. We also believe that investors are moving increasingly towards sustainability, displaying growing awareness of and a focus on sustainability, including for investment decisions. This is why Vontobel’s impact investing strategy is to address the world’s most pressing challenges by investing in companies with innovative and scalable products and services. This approach aims to offer clients what we call the “double dividend”: the opportunity to generate financial returns while at the same time making a positive and measurable impact on our planet and society.

Looking at water specifically, our impact investing approach aims to invest in companies that address the world’s need for clean water. While three billion people worldwide rely on water sources of unknown quality⁵, this challenge is compounded by rising demand for water, increasing water pollution, and inadequate access to safe and affordable drinking water. Through impact investing, we invest in companies that: provide drinking water and manage waste water; upgrade old water infrastructure using new technologies and monitoring; address sanitation and water treatment infrastructure for EM countries; create products to improve water efficiency; and enable desalination.