Tap into water: the world’s most important natural resource

Water is a vital commodity that most of us take for granted. Humans need it to survive and businesses to thrive. But population growth and rising industrial use are putting pressure on the earth’s limited supply of fresh water and climate change is making the water-scarcity problem worse. This creates an attractive opportunity for investors to back water-related companies.

The global water crisis

Water is essential for human life. Wherever they are, people need water to survive. But fresh water is scarcer than you might think. It makes up a very small fraction of all water on the planet. Although nearly 70% of the globe is covered by water, only 2.5% of it is fresh. The rest is salt water and found in oceans. Even then, just 1% of fresh water is easily accessible, with much of it trapped in glaciers and ice caps. That’s not a lot to support the planet’s 8.1 billion people.

Water is not only vital for human existence but it’s central to the modern economy too. There is growing demand from nearly every industry, including agriculture, food production, and even semiconductor manufacturing. Semiconductor manufacturers need pure water to make chips. Restaurants and hospitals can’t operate without clean water. Water is used to cool data centres. It’s estimated that a typical semiconductor plant guzzles between two and four million gallons of water a day. That’s the daily need of a small town in the UK with about 20,000 people.

Water is a key input to many industries – and this makes it just as important as other supply-chain links. Global demand has more than doubled since 1960 and continues to rise. But the earth’s small supply of fresh water is very unevenly distributed across the planet. Half of the world’s population suffers severe shortages for at least one month of the year already. By 2030, demand for fresh water will outstrip supply by 40%, warns the United Nations. This makes water, or the lack of it, an operational risk for many businesses, just like the possibility of a cyberattack.

Climate change and underinvestment in water infrastructure are compounding the problem. An increase in extreme weather events – storms, floods, and droughts – is exacerbating many forms of water pollution and ageing pipes are struggling to cope. In the US, a staggering seven billion gallons of drinking water are lost each day to leaks. That’s 30% of what’s lost worldwide. And the country’s largest manmade reservoir, Lake Mead, has dropped to historically low levels in recent years amid drought, increased water demand, and the effects of climate change.

It’s a similar picture at home and in other parts of the world. In the UK, we lose three billion litres of water each day through a vast network of buried pipes that is long enough to reach the moon, and in places date back to the Victorian era. By 2050, an extra 4,000 mega litres of water (that’s four thousand million) will be needed every day to meet demand. That’s enough to fill 1,600 Olympic swimming pools. And rising temperatures will mean a fivefold increase in the risk of drought. It’s no wonder experts warn of a rapidly accelerating global water crisis.

Thankfully, the threat to the world’s supply of fresh water is drawing political attention, with governments starting to drive investment in clean water. The European Investment Bank commits €3bn to water-infrastructure projects each year. And in the US, the Bipartisan Infrastructure Law has earmarked more than $50bn to improve drinking water, wastewater, and storm infrastructure. That’s the biggest investment in water that the federal government has ever made.

Alongside this government push, there are clean-water solutions coming from the private sector. According to BCC Research, the global water and wastewater treatment technologies market will reach $516bn by 2028, expanding from $303bn in 2023 at a compound annual growth rate of 11.2%. These companies are turning the tide with innovative technologies that detect and repair leaks, test and improve the quality of water, and better manage this vital resource.

Turning the tide

A prime example is Xylem (XYL.N) – the world’s biggest company focused entirely on water-based technologies. Its comprehensive portfolio of products and services spans the entire water cycle, from source to discharge. It’s a one-stop shop for utilities, industrial manufacturers, and buildings operators in more than 150 countries to get all their water-related needs, from pumps and valves to sensors and analytics.

The company’s 25 global brands have served the water market for decades. In 2023, Xylem bought water-treatment company Evoqua. The combination achieved proforma revenue of $8.1bn through operations concentrated on water infrastructure, applied water, measurement and control solutions, and integrated solutions and services.

The company is committed to solving the world’s critical water challenges with innovation and expertise. The focus is on developing water technologies that use less energy, reduce lifecycle costs, and support sustainability efforts. This includes digital tools that combine smart and connected technologies.

Xylem is recognised as one of ‘America’s most responsible companies’ (ranked #2 by Newsweek in 2024). Since 2019, Xylem technology has enabled water managers around the world to treat more than 13 billion cubic meters of water for reuse – equivalent to the domestic water needs of 197 million people annually – and to prevent more than 8 billion cubic meters of polluted water from flooding communities. By 2030, Xylem wants to help its customers reduce global water demand by at least 2 billion cubic metres.

Source: Xylem.com

Halma (HLMA.L) is also making waves. This is a global group of life-saving technology companies that make specialist products, from fire-suppression systems and

eye-testing equipment to sensors used to detect gas leaks. Halma has a good track record of buying small businesses and then helping them to grow and to expand internationally. At present, the group comprises nearly 50 companies that operate in more than 20 countries. These are united by a shared purpose to make a ‘safer, cleaner, healthier future for everyone’.

The group includes six water-related companies and other environmental businesses. Each of these is focused on solving different parts of the global water challenge. Some of the companies supply sensors to help water utilities detect stormwater overflows and leaks in the water network, as well as equipment to enable them to repair pipes faster and without the need to dig a trench. This can involve using remote-controlled robots or inserting a lining into a pipe that is then cured using patented ultraviolet (UV) LED technology. Another business supplies UV disinfection systems to remove contaminants from water without the use of chemicals.

Halma has a longstanding capability in water testing through Palintest – a business it bought in 1983. The company enables more than 250 million water-quality tests a year for a wide range of customers, including more than five million for partners in international relief and development.

Watch the film

Other less-obvious companies are on the ‘right side of the problem’ too. Thermo Fisher (TMO.N) makes all the specialist equipment needed in a laboratory, from chemicals and consumables to analytical instruments and diagnostic tools. It’s the supplier of choice for scientists working in academic institutions, government agencies and hospitals, and the pharmaceutical and biotech industries. Thermo Fisher’s mission is to provide innovative technologies and services that help its customers make the world ‘healthier, cleaner, and safer’. The Massachusetts-based company generates revenue of more than $40bn a year.

This includes products to improve the quality of water. Thermo Fisher’s water purification systems convert tap water to pure or ultrapure water to ensure consistent results in the lab. And, tightening environmental regulation is driving customer demand for technologies that test drinking water and wastewater for harmful ‘forever chemicals’ (e.g. PFAS) and other contaminants, even microplastics. As part of its own corporate-responsibility agenda, Thermo Fisher is developing energy-efficient purification systems, promoting water conservation in laboratories, and helping customers improve water management in industrial processes.

Quench your thirst

There are also exchanged-traded funds (ETFs) for investors who want broad exposure to water-related stocks or for whom single-stock exposure is incompatible with their risk profiles.

The L&G Clean Water UCITS ETF (an index tracking product) is one way to invest in some companies that are in the industrials sector, as well as utilities and technology companies. Legal & General partnered with Global Water Intelligence, a leading specialist team with backgrounds in journalism, finance, economics, water, and technology, to create and manage the index being tracked by this ETF.

The ETF currently invests in 54 companies that are actively engaged in the international clean-water industry through the provision of technological, digital, engineering, utility, and other services.

Make a splash

Water is not the most glamourous industry. But the many pressures on this vital natural resource mean that water stocks will hold an important place in the investment portfolios of tomorrow.