Article
Clean water is becoming a scarce commodity in an age of progressing climate change and environmental pollution. Companies can make a valuable contribution by developing technologies to purify, desalinate, and use water more efficiently.
May 6, 2020
Only 3% of all water on Earth is fresh water. If it were more evenly distributed, there would be enough water for everyone. The reality, however, is different. Water shortages have long been a major problem in many regions of the world. Climate change and population growth are likely to exacerbate the situation. Therefore, it comes as no surprise that the World Economic Forum (WEF) in 2019 identified water scarcity and its effects as the greatest threat of the coming decade.1 Four billion people, or two thirds of the world’s population, suffer from extreme water shortages and do not have enough water for at least one month per year. This affects almost two billion people in India and China. Five hundred million people lack sufficient water year-round. Half of the world’s largest cities that are found in Egypt, India, China, Bangladesh, Pakistan, Nigeria, South Africa, Mexico, and the southern and southwestern United States already face water shortages.2 Recent estimates show that more than 50 countries worldwide suffer from water stress. These countries use more than a quarter of renewable water resources, which may lead to an increasing risk of environmental problems and economic difficulties.3
One fifth of groundwater reservoirs worldwide are considered overused4 and water consumption continues to rise. This is attributed to population growth, urbanization, a higher standard of living and changes to consumer habits, as well as increased irrigation of agricultural land. With the growing Asian middle class, the consumption of meat and dairy products is also increasing, as is the use of foodstuffs for biofuel production. Industrial agriculture requires more and more land and water. Since the 1980s, global water consumption has been climbing by around 1% per year. Global water demand is expected to continue growing at a similar rate until 2050, which represents an increase of 20% to 30% compared to the current water consumption.5
"When the well is dry, we know the worth of water."
Benjamin Franklin6
Climate change aggravates the situation even further, because changes to the climate affect the hydrological cycles, particularly precipitation and evaporation. Prolonged periods of drought and progressing desertification, rising sea levels, and the loss of entire ecosystems are likely to lead to a sharp increase in migration and political conflicts over access to water. Today’s arid regions will tend to suffer even more from water shortages, whereas regions with high precipitation could see even more rain. This will have very different impacts on various regions of the world. In regions where food security depends on irrigation, water scarcity is a threat to livelihoods. Such situation is likely to occur in southern China, the southern part of the United States, in Australia, the Middle East and the Mediterranean region. By contrast, more precipitation and flooding is expected in parts of East Africa, western China and southern India. Between 1995 and 2015, floods accounted for 43% of all documented natural disasters. They impacted 2.3 billion people and resulted in property damage worth USD 662 bn.7
Water demand and supply will continue to diverge. In 2012 McKinsey calculated that with the annual growth rate of 2%, water demand could exceed supply by 40% by 2030 if no further investment is made in outdated infrastructure and in measures aimed at adapting to climate change.8 One consequence of this development is obvious: the price of water will increase significantly.
Source: Global Water Tariff Survey, Global Water Intelligence (GWI), 2018
Over the past 15 years, tariffs for water and wastewater in the United States have doubled, exceeding the increases for electricity or gasoline. In global terms, tariffs for water and wastewater rose by 3.8% to USD 2.04 per m3 in 2018. The average water tariff was USD 1.16 per m3 and the tariff for wastewater reached USD 0.88 per m3. As a result of significant investments made in the drinking water network and wastewater treatment, the combined tariff level in North America was USD 4.2 per m3 and USD 3.9 per m3 in Europe, compared to USD 0.3 to USD 1.7 per m3 in other regions. Cape Town recorded a significant tariff increase of 390% in 2018 due to an acute drinking water shortage. Investments in desalination and sewage plants and the elimination of state subsidies also led to an increase by 93% in Manama (Bahrain) and 60% in Abu Dhabi (UAE).9
Agriculture – including irrigation, livestock breeding, and aquaculture – is by far the largest consumer of water worldwide. Its share is particularly high in developing countries, while it is lower in industrialized nations.10
Most of the agricultural land, on which mainly rice and wheat are grown, is located in India and China. A large portion of these fields is currently irrigated in a way that uses water inefficiently. The plants absorb only a fraction of the water, while the rest percolates, drains off, or evaporates. This highly common irrigation method leads to high water consumption and eroded and salinated soils. According to Alexander Zehnder, Director of the Swiss Federal Institute of Aquatic Science and Technology (Eawag), water consumption could be reduced by around 60% to 70% in Swiss agriculture.11 Improvement measures include minimizing losses through targeted micro- or sprinkler irrigation and multiple use of water.
Industry is also being called upon to increase water efficiency. In recent years, temperatures in watercourses such as the Rhine or the Elbe have in some cases exceeded critical values, with daily averages of over 28°C caused by long summer heat waves. This has had an adverse effect on the river fauna, especially fish, and led to restrictions on the supply of cooling water to industrial plants and power stations. As a result, Germany has developed an action plan to gradually reduce heat input from industrial plants and power stations. In order to use as little water as possible as a raw or operating material and to use the extracted or purchased water as efficiently as possible, companies can, for example, set up an internal water management system, use water in closed loop systems, employ water-saving technologies, or replace water with other substances, e.g. emulsions. A decisive factor for the manufacturing industry is the economical use of cooling water in production processes and power generation. The use of cooling water accounts for around three quarters of the total water use in the sector.
Households also need to use water efficiently. Although average water consumption in Switzerland was reduced from 230 liters per person in 2000 to around 142 liters per person in 2017 as a result of more efficient dishwashers, washing machines, and water-saving taps,12 households still account for a significant portion of water usage. According to the Swiss Gas and Water Industry Association (SVGW), nearly one third of water consumed in Switzerland is used purely for personal and clothing hygiene as well as for cooking. It is therefore hardly surprising that the savings potential is far from exhausted: without sacrificing comfort, efficient use of water could reduce consumption by 15% to 60%, depending on the region and technology.13 Daily water consumption can be reduced by nearly 30 liters just by using taps with water-saving features.14 Considerable savings opportunities are seen in toilet flushing, which does not necessarily require potable water and accounts for around 25% to 30% of total domestic water consumption in most industrialized nations15.
Water shortage is but one problem. The other ones are a lack of hygiene and safe access to water. Three out of ten people worldwide do not have access to clean and continuously available drinking water, and six out of ten people lack safe sanitation facilities. Developing countries, predominantly in Africa, are particularly affected. However, millions of people living in the suburbs in Central and Latin America as well as Asia – often in the so-called poverty belt areas – also experience the problems. In 2016, 29 of 48 countries in the Asia-Pacific region were classified as water-insecure due to low water availability and unsustainable groundwater abstraction. Many citizens of Western and Central Europe and North America have no or only limited access to water and sanitation services.16 Increasing rates of urbanization are likely to further boost the demand for safe, modern water supply. By 2050, 70% of the world’s population will live in urban areas.
Countries must ensure that water is available, accessible, and treated. This includes investments in water collection and management of surface water and groundwater. This also includes investments in the water distribution network, as well as in cleaning, disinfection, and water recycling. In order to improve the water supply and secure it for the future, the United Nations is calling on governments to make major investments. Emerging markets must invest in the development of basic water and sanitation structures in urban centres, while in rural areas the focus is on the development of regional centers for drinking water, sanitation and hygiene (WASH). Industrialized nations, on the other hand, are being forced to replace outdated systems due to the high degree of water loss. The need for investment is enormous and calls for alternative financing approaches. The private sector is therefore expected to be a major contributor, which may participate in public investment projects either through work contracts or licensing. Private–public partnership could have a particularly significant role to play – however, at 3%, their share in industrialized nations is surprisingly low.17
The World Water Council comprises more than 300 member organizations worldwide, which carry out a global dialogue and promote international cooperation to mitigate the effects of climate change on water security. In 2017, it announced that more than EUR 255 bn would have to be invested in water infrastructure worldwide every year until 2030 to meet the United Nations’ Sustainable Development Goal 6 (SDG 6 – Clean Water and Sanitation) as part of its 2030 Agenda for Sustainable Development. Out of this sum, EUR 100 bn per year would have to be spent on adequate new water infrastructure and at least another EUR 155 bn on renewing and improving equipment to adapt to climate change and mitigate global warming.18 In a study published in 2013, McKinsey even reckons that a total of USD 11.7 tn will have to be invested in water infrastructure in the period from 2013 to 2030, an order of magnitude similar to that of energy production (USD 12.2 tn) and well in excess of telecommunications infrastructure (USD 9.5 tn).19
Donor countries have steadily increased their disbursements of official development assistance (ODA) for the water sector over the years, reflecting the growing importance of the water issue. Between 2016 and 2017, a tripling of aid commitments for agricultural water resources via new projects in South and South East Asia led to a significant rise in the curve. Commitments for water supply and sanitation also increased significantly in the same period.
The topic of water affects mainly companies from several subsectors and industries, which can be roughly divided into two groups: industry and water utilities. The industry provides innovative solutions for the treatment, filtration, and efficient use of water. Water utilities, on the other hand, manage the supply networks and are usually concessionaires.
Global human population growth and the progression of climate change will intensify struggles over the allocation of resources in the medium term, especially in areas with water shortages. Agriculture and industry are being called upon to use the resource of water more efficiently and to invest in technologies. At the same time, water infrastructure in many countries is inadequate or in need of modernization. This means that governments will be forced to invest in water infrastructure, which will tend to result in higher water tariffs. The private sector will be able to benefit from these major investments, not only as developers and technology suppliers, but also as concessionaires and operators of the facilities.
The companies mentioned on this page are not intended as a solicitation or an offer to buy or sell any interest or any investment.
Source:
1 The Global Risks Report 2019. Insight Report. World Economic Forum, 2019.
2 A.Y. Hoekstra, M.M. Mekonnen: Four billion people facing severe water scarcity. American Association for the Advancement of Science, February 12, 2016.
3 See www.unwater.org/publications/progress-on-level-of-water-stress-642/; www.unwater.org/water-facts/scarcity/.
4 Water for a Sustainable World, The United Nations World Water Development Report, UNESCO, 2015.
5 Burek et al, 2016; pure.iiasa.ac.at/id/eprint/13008/.
6 Benjamin Franklin, American printer, publisher, writer, scientist, inventor, and statesman, 1706 to 1790.
7 The human cost of weather-related disasters 1995–2015, 2015, United Nations Office for Disaster Risk Reduction (UNDRR), Centre for Research on the Epidemiology of Disasters (CRED).
8 Transforming Water Economies, McKinsey & Company, 2012.
9 Global Water Tariff Survey, Global Water Intelligence (GWI), 2018.
10 Food and Agriculture Organization of the United Nations (FAO), AQUASTAT, www.fao.org/aquastat/en/overview/methodology/water-use.
11 Scarce water resources, Neue Zürcher Zeitung (NZZ), March 21, 2001.
12 Swiss Gas and Water Industry Association (SVGW), www.wasserqualitaet.svgw.ch/index.php?id=874.
13 Ecologic Institute: www.ecologic.eu/2175.
14 NZZ, February 8, 2013.
15 Swiss Gas and Water Industry Association (SVGW), www.wasserqualitaet.svgw.ch/index.php?id=874.
16 United Nations World Water Development Report, 2019.
17 Water and Climate, Blue Book, World Water Council, 2017.
18 World Water Council, Bonn, Brasilia, Marseille, New York, November 3, 2017.
19 McKinsey & Co., Water infrastructure, 2013.
IMPORTANT INFORMATION
Source: Credit Suisse, otherwise specified.
Unless noted otherwise, all illustrations in this document were produced by Credit Suisse Group AG and/or its affiliates with the greatest of care and to the best of its knowledge and belief.
The information provided herein constitutes marketing material. It is not investment advice or otherwise based on a consideration of the personal circumstances of the addressee nor is it the result of objective or independent research. The information provided herein is not legally binding and it does not constitute an offer or invitation to enter into any type of financial transaction. The information provided herein was produced by Credit Suisse Group AG and/or its affiliates (hereafter "CS") with the greatest of care and to the best of its knowledge and belief. The information and views expressed herein are those of CS at the time of writing and are subject to change at any time without notice. They are derived from sources believed to be reliable. CS provides no guarantee with regard to the content and completeness of the information and where legally possible does not accept any liability for losses that might arise from making use of the information. If nothing is indicated to the contrary, all figures are unaudited. The information provided herein is for the exclusive use of the recipient. Neither this information nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person (within the meaning of Regulation S under the US Securities Act of 1933, as amended). It may not be reproduced, neither in part nor in full, without the written permission of CS. Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor's reference currency. Equities are subject to market forces and hence fluctuations in value, which are not entirely predictable.
Emerging market investments usually result in higher risks such as political, economic, credit, exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks. Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of political instability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the development stage or a weak economy. These funds are domiciled in Luxembourg. The representative in Switzerland is Credit Suisse Funds AG, Zurich. The paying agent in Switzerland is Credit Suisse (Switzerland) Ltd, Zurich. The prospectus, the simplified prospectus and/or the Key Investor Information Document (KIID) and the annual and half-yearly reports may be obtained free of charge from the representative or from any branch of Credit Suisse AG in Switzerland.
Copyright © 2020 Credit Suisse Group AG and/or its affiliates. All rights reserved.