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Stress relief
Achieving a closed water cycle promises unlimited volumes of freshwater, but investment is required to recognise its full potential
There is projected to be a 40% gap between water consumption and supply by 2030. Today as a society, we consume more freshwater than is available. At current consumption rates, by 2025 two-thirds of the world’s population will face water shortages, according to Unicef.
This trajectory risks displacing large populations, affecting livelihoods and adding to environmental stress. However, we also know the Earth has sufficient water supplies, so long as they are used sensibly and reused or recycled.
The global water challenge
Access to clean water is one of the most pressing challenges we face. Water scarcity, flooding and inadequate water management impedes social and economic development. Over the past 25 years, the amount of fresh water available worldwide has fallen due to pollution, climate change, increased urbanisation, poor water infrastructure and overuse. At the same time, the demand for water is increasing at an unprecedented rate.
There is sufficient fresh water on the planet for everyone to have access to clean and accessible water and yet the reality for millions of people across the globe is water scarcity, poor water quality and inadequate sanitation. Since 1990, 2.1 billion people have gained access to improved water sanitation, according to the United Nations. However, it is projected that by 2050, at least one in four people will be affected by recurring water shortages.
Wastewater and seawater have long been considered potential sources of freshwater, with emerging technologies aimed at facilitating reuse and recycling. Humanity is polluting water faster than nature can recycle and purify rivers and lakes. Achieving a closed water cycle promises unlimited volumes of freshwater, but investment is required to recognise its full potential. Investment in water purification technology is essential to ensure access across the developing and developed regions.
Phoebe Stone
Partner and head of sustainable investing, LGT Wealth Management
‘
Humanity
is polluting water faster than nature
can recycle and purify rivers and lakes’
40%
Projected gap between water consumption and supply by 2030
Source: Unicef
2/3
Share of world’s population that will face water shortages by 2025
Source: Unicef
Investing in water sustainability
Within our sustainable data tool, we assess water consumption and water usage, as well as the water stress levels in which the company operates. This analysis helps to build a picture of the water stress exposure and the risk management for the underlying businesses. Water stress exposure refers to the ability, or lack thereof, to meet demand for fresh water, including both the access to physical water supplies and the quality of the water available.
We also evaluate water risk, meaning the possibility of an entity experiencing a water-related challenge such as droughts and flooding, and the company’s own management of water supplies through water risk management practices. The materials (including metals and mining), utilities and energy sectors are the top three most water intensive sectors, meaning they are most likely to face above-average water availability challenges.
Countries currently experiencing the highest level of water stress, and those predicted to do so by 2050, include north African countries such as Egypt, the Middle East and some Asian countries, such as India and Pakistan.
Water risk data points are integrated into our in-house sustainability rating tool to evaluate the sustainability profile of investee companies. Additionally, within the sustainable portfolios we manage for our clients, we seek to invest in solutions for water treatment and purification to address water scarcity and improve development standards.
As water stress is an issue that is likely to increasingly impact companies and countries globally, the role of these businesses will become more critical.
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