structure maintenance and construction of projects.Engineering services involved in the design and con-struction of water-related facilities and the retail wa-ter sector involved in the production and sale of bot-tled water, vending machines, bottled water sub-scription and delivery services, and water tankersare all included as water sector industries (Yang2009).Private investors and investment funds can buy rights to water or purchase land with lakes orsprings. An individual or a corporation can invest in water-targeted hedge funds, index funds and ex-change-traded funds (ETFs), water certificates,shares of water engineering and water technology companies, shares of multinational private waterutilities, shares of multinational banks and invest-ment banks that own water utilities or water-related
companies. According to Yang (2009), the “real sto-ry of the global water sector” represents a far more
complicated interlocking of globalized capital: in- vestment funds, banks, private equity groups, insur-ance companies, regional public-sector pensionfunds, sovereign wealth funds and hedge funds part-ner with one another and with makers and proprie-tary owners of cutting-edge technology to consoli-date water rights and water-treatment technologies.These enterprises also cooperate to privatize public water utilities and infrastructure. Given the tremen-dous hydrological challenges facing humanity, thisaggregation of capital in the water sector comes as arelief to many concerned spectators; however, othershave grave misgivings about the capitalization andconsolidation of water in the hands of financial in-terests. Obviously these deep-seated resentments tocapital investment in the water sector represent arisk to the investments in the form of political back-lash if the price of water services rises above a politi-cally acceptable level.
The market buzz over water sector invest-ments is not new. In fact, it seems to be waning.The water scarcity hypothesis started attracting at-tention in the early 2000s and was garnering signifi-cant attention from the investment community by 2005. By 2007, the water scarcity angle was a majorstory; however, valuation and liquidity problems inthe United State banking system triggered a sharpeconomic downturn in 2008. In 2009, coinciding with the global financial crisis, sharp losses in newly created water Exchange Traded Funds (ETFs)
chilled investment and quieted the story.
Supply and Demand Paradigm:
For some investors, buying into the water scarcity thesis is as straightforward as supply and demand.The 2030 Water Resources Group publication,
“Charting Our Water Future” estimated that by
2030, consumer demand for water will rise a full 40percent above currently accessible, reliably availablesupplies (including environmental flows and returnflows). One-third of the population, primarily indeveloping countries, will live in basins where thisdeficit is larger than 50 percent (2009: 5). The UNestimates that by 2050 two-thirds of the world will
be “water stressed,” with almost two billion people
living in countries facing water scarcity (Greenwire
2008). Asia, home to the world’s fastest growingeconomies, contains 60 percent of the world’s popu-
lation but only 36 percent of its water supply. Chinais experiencing severe water stress, with 21 percent
of the world’s population and only 7 percent of the
water supply (Goldman Sachs 2008). Demand for water continues to grow at unsustainable rates, driv-en primarily by population growth and develop-
ment. At the same time, the world’s fresh water sup-
ply is shrinking due to pollution, draining of under-ground aquifers, and climate change. In the UnitedStates, water demand has tripled in the past 30 years, while the population has grown by only half.Globally, water consumption is doubling every 20 years, outpacing population growth by two-to-one. Water is a finite resource. Only three percent of the
Earth’s water is fresh water and of that, less than
one percent is readily accessible to humans(Scientific American 2008). Pollution is diminish-ing this supply. The UN estimates that over 80 per-cent of sewage in developing countries, the countriesthat have the greatest unmet water demand, flowsuntreated into bodies of water (Calvert Investments2012). Given current trends, by 2025, it is estimatedthat about one-third of the global population will nothave access to adequate drinking water (GoldmanSachs 2008).
Calvert Global Water Fund, a branch of Calvert In- vestments with roughly $62 million in assets in theglobal water sector, identifies four key factors driv-ing growth: shrinking supply of a fragile resource,surging global demand driven by population, evolv-ing regulatory landscape and technological innova-tion (2012). Investment opportunities include buy-ing the rights to actual water, investing in companiesthat provide water-related services and investing in water-related technology. The first two can create
3 Especially PowerShares Global Water Portfolio (PIO) andPowerShares Water Resources (PIO)