Water is a challenge and opportunity for investors

By Ellen Kennedy—Ellen is the Manager of Environment, Water and Climate Change for Calvert Investments.

As demand for water surges and infrastructure and natural water cycles deteriorate, shortages and stress are having a significant global impact on industry and drinking water availability. Advisors who understand the issues related to global fresh water supply and delivery can take advantage of investment strategies based on this sector of the economy.

The Challenge

There are several drivers to the current water crisis. First, water is strained by population growth. Water demand typically grows twice as fast as population growth, and is predicted to grow as much as 41% by 2030. About 800 million people today do not have access to clean drinking water and about 2.5 billion do not have access to sanitation.

One of the most troubling outcomes of increased water demand is over-extraction of aquifers and other groundwater. Aquifers may be depleted fairly quickly, but typically take a long time to recharge. For example, the Ogallala aquifer in central U.S. states has enabled large-scale agricultural production, but a recent study found that the aquifer has already been depleted by 30% and could be almost 70% depleted in 50 years. To recharge the aquifer is estimated to take between 500 and 1,300 years.1

Another contributor to the global water crisis is increased pollution and contamination of freshwater supplies. Eighty percent of sewage in developing countries is untreated, which then returns to local waterways or may be used to grow crops, posing health risks.

Climate change can also contribute both to water scarcity and flooding. A Texas extension service study found that the Texas drought starting in 2010 caused over $7 billion in damages to ranchers and crop farmers, and that 2011 was the driest on record. Most recently in 2013, damage from flooding in Boulder and other regions in Colorado caused approximately $2 billion in damages.2

Finally, years of poor water infrastructure management are catching up to us in the US and other countries. In the US, we have 700,000 miles of water pipes that we are replacing at a rate of less than 1% per year – so our replacement cycle is only every 250 years or so for pipes that are designed to last about a hundred years. Moreover, these old pipes leak water at astonishing rates, further driving inefficiencies in our distribution systems.

The Opportunity

Between 2005 and 2030, the world needs to invest about $22 trillion globally to meet our growing water needs. This investment will need to focus on infrastructure in the US and Europe, but also in China and elsewhere. Innovation will also be critical for managing water systems. For example, Xylem Inc. (XYL) is a US-based water technology company that manufactures pumps that were nicknamed “The Pumps that Saved New York” after they successfully cleared water from tunnels after Hurricane Sandy.

Calvert Investments offers the Calvert Global Water Fund (CFWAX)* to capture these opportunities and enhance global water sustainability. Unlike most water funds, Calvert’s fund has sustainability criteria; the fund does not invest in companies significantly involved in bottled water, and avoids companies that have significant operations in Sudan or Burma. The Fund also engages in advocacy with the companies it holds, as well as general policy work. For example, Calvert is a member of the CEO Water Mandate, a multi-stakeholder initiative that seeks to tackle thorny issues such as how to ensure the human right to water, and establishing guidelines for companies to disclose water risk.
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1 Blair Fannin, “Updated 2011 Texas agricultural drought losses total $7.62 billion,” AgriLife Today, March 21, 2012. http://today.agrilife.org/2012/03/21/updated-2011-texas-agricultural-drought-losses-total-7-62-billion.
2 Veronica Linares, “Ogallala aquifer could dry up in 50 years.” Science News, Aug. 28, 2013. http://www.upi.com/Science_News/Blog/2013/08/28/Ogallala-Aquifer-could-dry-up-in-50-years/9221377716516.

* The Fund is subject to the risk that stocks that comprise the water sector may decline in value. In addition, shares of the companies involved in the water sector have been more volatile than shares of companies operating in other more established industries. Consequently, the Fund may tend to be more volatile than other mutual funds. In addition, foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations. For more information on any Calvert fund, please contact Calvert at 800.368.2748 for a free summary prospectus and/or prospectus. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The summary prospectus and prospectus contain this and other information. Read them carefully before you invest or send money.

Calvert mutual funds are underwritten and distributed by Calvert Investment Distributors, Inc., member, FINRA, and subsidiary of Calvert Investments, Inc. 800.368.2748

Calvert Investment Management, Inc. serves as the investment advisor and provides sustainability research for the Calvert mutual funds and institutional investment strategies.