Water – ESG Feature
collective water-related losses in 2018, says CDP, a sustainable data provider. Unfortunately, data like this is scarce. It is just as difficult to get accurate and comparable information on a corporate’s water use as it is on their carbon emissions, although it is fair to say that monitoring and reporting on a corporate’s carbon foot- print is more advanced when it comes to disclosure. Yet corporates are doing their bit. Examples include Nestlé making saving water one of its operational aims for each of its products. In the US, Brazil and South Africa, it reclaims the water that evaporates from making milk products. This policy was made in response to claims it was using too much water. Consumer goods specialist Unilever has a goal to limit the water used in its manufacturing processes to the levels recorded in 2008, despite increased production. It has since cut its water usage per tonne of production by 39%. Governments are playing their part, too. Indeed, US president Joe Biden’s $2.2trn (£1.6trn) infrastructure plan includes a $55bn (£41.2bn) investment to create greater access to drinking water. The plan also focuses on improving the US’ water infrastructure. Welcomed developments, if such projects are completed.
Check the index Water as an investment theme is not a new concept. There is the S&P Global Water Index, which is tracked by two ETFs, with both of which having more than £1bn of assets. “We have also had interest from structured product users. We have seen numerous requests,” says Ari Rajendra, senior director for strategy indices at S&P. “We have continued to see more inter- est this year in water,” he adds. “It is a theme that is of interest at the moment.” The index has performed better than the S&P Global Broad Market Index by around 3% a year since its incep-
tion towards the end of 2001. Rajendra says the Global Water Index has been constructed through two clusters. The first is water utilities and infrastructure, which includes treatment, purification, drilling and supply. The other is water equipment and materials: water treatment chemicals, pumps, pipes and motors. “This is one step further in the value chain,” he adds.
Cross country Water is finite. It is not about making more of it but managing what we have effectively. Protecting and increasing supply cre- ates an opportunity for investors. One is investing in technolo- gies and projects that increase access through purifying dirty water. Another move would be to reduce wastage by helping corporates to use less of the mineral in their operations. Then there is halting losses. Burst pipes are a problem technology is working to fix. I have read of devices that flow through pipes to test their strength by testing for vibrations. A weak response may mean a weakening pipe that could potentially burst. Other solutions to droughts include finding new sources or transporting it from other areas. China’s answer is to transport water from rural areas to Beijing, which increases supply in the capital by more than a third, but is expensive to transport. Water shortages could be another reason driving urbanisation, as people leave drought-stricken provinces to make a new life in the capital, which increases the concentration of demand. As science has not worked out how to make it, and diverting it cross country is expensive, perhaps the best option is to encourage lower use, to collect and use rainwater for functions such as flushing toilets or industry to recycle it where they can.
We have continued to see more interest this year in water.
Ari Rajendra, S&P
Lessons from history But could cutting water in your business expand to your supply chain? Investors have to assess the carbon emissions released at various parts of the chain, including use by the consumer, such as with cars, for example. So, could companies be responsible for their entire water foot- print? If they are importing products, such as food or clothing from countries suffering from water stress, should they be responsible for increasing instances of drought? Should they have to pay towards easing the problem? Are they part of the problem despite reducing usage in their own operations? It appears that reversing the severity of water stress will not be easy. One of the authors of the UCLA report into the drought in the west coast of America, said in a statement that: “It’s extremely unlikely that this drought can be ended in one wet year.” The worry, and investors with the influence they have over cor- porates and sometimes governments should take note here, is that more than a millennium ago it is believed that the Mayan civilisation ended due to drought. So, a lack of freshwater killed the Mayans. Think about that when you are running a bath.
Issue 111 | March 2022 | portfolio institutional | 33
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