Let’s Talk Water

Flat World Partners
6 min readFeb 1, 2024

About | Mission | Blog

There were plenty of publications out last week covering the US Department of Energy’s announced $7 billion program dedicated to seven new hydrogen hubs. This week, we are dipping our toes into a less-hyped, often overlooked topic, water. While water does not tend to generate the same level of heated social media debates as hydrogen or carbon capture, it is a heavy hitter in the broader sustainability and impact landscapes. The water crisis is global and interrelated to many of the drivers and trends in the climate battle. Climate change alters hydrological cycles which lead to extreme weather events.
Global water stress is on the rise although it tends to hit major media headlines primarily in crisis situations. Many readers may have been negatively impacted by water issues and are aware of rampant US and international droughts, contamination, and flooding. Even the most skeptical climate deniers are cognizant of the vital nature of water. Unlike other sustainability solutions (solar, wind, etc…), water has no substitutes and is essentially borderless and water shortages tend to be more localized, unlike global commodity markets such as hydrocarbons.

For impact-oriented and sustainable investors, water issues should be near the top of the list. Access to clean and reliable water is a must to alleviate poverty and ensure inclusivity. The World Bank cited figures indicate that over 40% of the world population live in water-scarce areas. The impacts of water scarcity and contamination are wide, spanning all sectors, with a tendency to materialize greater effects on women and children. The UN estimates that by 2030 lack of access to water could displace 700mm people and over 2 billion people live in countries where water supply is inadequate.

Despite the severity of the water crisis, the water sector remains underinvested. The World Bank estimates $6.7 Trillion of investments are needed in water-related infrastructure by 2030. Governments globally are increasing water infrastructure investments although the amounts are short of growth and maintenance capital needs due to aging infrastructure, population growth, urbanization, and material leakage and losses. Private sector capital will certainly be needed, but where is it?

Water appears to have broadly missed the wave of recent climate investment flows. It remains a crucial part of the broader sustainability theme despite having landed outside the core climate conversation. One might view the sector as a play on climate adaptation. It can also be useful to think of water within a planetary boundaries framework encompassing the biosphere as a whole. FWP increasingly believes it is integral to the climate crisis.

Interestingly, water is often excluded from many climate strategies. Our team runs across numerous climate strategies focused on all facets of decarbonization, climate tech, and energy transition although direct water investments remain rare. There are a few venture water strategies (e.g., Burnt Island Ventures), select private equity strategies (e.g., XPV Water Partners), water entitlement funds (e.g., Kilter Rural) plus, a variety of Oceans funds are emerging. While impact investors (e.g., WaterEquity & Green Climate Fund) have stepped up investments in many cases via public-private partnerships, there remains a wide capital and innovation gap to address.

Water is a mature sector with historically lower cyclicality. The sector is expansive, with an estimated $1 Trillion market growing in the mid-single digits. However, the water industry is typically slower to adopt innovation given it is dominated by utilities, municipalities and industrials. These market dynamics may not entice venture capital targeting high multiple opportunities. It appears that these general industry dynamics appear to be keeping innovation investors on the sidelines. with more interest from infrastructure and private equity investors. It is worth highlighting, water tech is an active and perhaps crowded space for M&A transactions.

Water investments in public markets fall primarily into utilities and broader industrials with limited universe of pure play market cap. As a result, water equities tend to fall into the broader infrastructure bucket in many cases. There are a niche universe of water dedicated funds, such as Pictet-Water, as well as select water ETFs, unfortunately, it is difficult to demonstrate impact in public markets and increased investor fund flows into public stocks are unlikely to solve the pressing water crisis.

As water stress increases, ultimately the planet and humanity will require innovation and increased investment in the sector via public and private strategies. We will need both demand-side and supply-side solutions and investments which will create opportunity. As investors continue to widen their lens from decarbonization to broader sustainability we will be on the lookout for unique water strategies and opportunities for clients and investors.

John Scanio, Managing Director — Investments

Amazon River falls to the lowest level in over a century (Reuters).

For those who like maps and charts check out Here’s where water is running out in the world — and why (The Washington Post).

On the positive side, hopefully our drinking water will be less polluted soon. The EPA aiming to restrict PFAS chemicals from drinking water with a final rule by year end. The changes reduce concentration limits from 70 parts per trillion to 0.02 parts per trillion. Europe also has a proposed ban on “forever chemicals.”

This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited

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