It was all so very A-list. As a guest of U2 frontman Bono, Hollywood star Matt Damon made a five-day visit to Zambia in 2006 to study the cause and effect of extreme poverty. At the time he called it “an inspiring and life changing journey”; looking back, 15 years later, he says what he discovered was “absolutely staggering”.
“I just was shocked at how water underpinned everything and undergirded all of these issues of extreme poverty yet nobody was talking about it,” he recalled in a World Economic Forum podcast released to mark World Water Day, on March 22 2021. “Nobody in the West could really relate to it, because for us, we’re always just a few steps away from a clean drink of water. And yet people were dying of entirely preventable diseases because they lacked access to clean water and sanitation.”
The experience led Damon to set up a charity that morphed into Water.org, which in 2017 launched an investment arm, WaterEquity. That organisation’s funds invest in microfinance institutions which lend money so individuals across the developing world can connect their homes to safe water supplies. The repayment of those loans sees the funds’ investors, which include Bank of America and the Conrad N Hilton Foundation, make a return. It is a reality many might baulk at but it is, Damon said, a solution to the “bottleneck [of] access to affordable capital” that means 2.2 billion people around the world do not have access to clean water and sanitation.
Damon is not the only one getting in on the act. Water itself is not a tradeable commodity, but ever since fresh water was identified as a “finite and vulnerable resource” in the 1992 Dublin Statement on Water and Sustainable Development, private companies have been finding ways of making money from purifying and supplying it. For Philippe Cullet, professor of international and environmental law at SOAS University of London, it is precisely because the Dublin principles allowed water to be tuned into “an economic good” that private investors were able to come in. “Before the 1990s there was no business case for this,” he says.
But because there is a business case, a small universe of investment funds has sprung up around the sector, affording everyday investors the opportunity to share in the potential spoils. Investment houses Allianz Global Investors, BNP Paribas, Pictet and Robeco all offer actively managed water-focused mutual funds, while BlackRock’s iShares is among the businesses that provide index-tracking funds.
None of the products on the market offer the prospect of making shoot-the-lights out returns and there is little in performance terms that sets one fund apart from another. According to data by financial research firm Morningstar, the average water fund grew by 13 per cent over the past five years, while the best performer – Robeco’s Sustainable Water Equities fund – returned 15.5 per cent, and the worst – Variopartner Tareno Global Water Solutions – 12 per cent. For anyone willing to sacrifice the potential for large gains, though, water funds offer the chance to beat the current rock-bottom interest rates for cash deposits while helping solve one of the key challenges currently facing the world.
Or do they?Managers of water funds do like to talk about the sustainability of their investments and how their funds are helping address a global issue. In the literature for its Aqua fund, BNP Paribas talks about respecting the ten principles of the United Nations Global Compact for Sustainable Development, and how water is “an increasingly rare and precious resource”. Allianz says its fund “offers investors the opportunity to generate environmental, social and financial alpha at the same time”.
Yet it is clear from a glance at their portfolios that these funds are not directly involved in bringing clean water to the people who need it most. Common holdings include American biotech firm Thermo Fisher Scientific, North American public utility American Water Works and US water tech provider Xylem. French utility Suez and UK-based Severn Trent also feature.
Jonathan Chenoweth, a senior lecturer in environment and sustainability at the University of Surrey, says that in the immediate aftermath of the Dublin Statement private sector investment was directed at improving water supplies in the developing world, but there has been “much less of that in recent years”. “These large companies can’t make profits by investing in rather poor countries supplying water to rather poor people,” he says. “They weren’t successful in terms of return on investment while for the local people water prices rose and they either didn’t feel the quality of the service had also risen or they didn’t feel they could afford it.”
The impact of that was seen in the 1999 to 2000 Cochabamba Water War, which erupted after the World Bank required the privatisation of Bolivia’s public utilities in exchange for a package of financial aid. Water prices soared after state utility SEMAPA was replaced by a private venture involving American company Bechtel and, after widespread protests that focused on safe water being a fundamental human right, the privatisation was revoked. It is perhaps unsurprising, then, that water funds are not making investments that directly solve water-access problems where they are most acute. It is still possible for them to make a positive impact, though.
Chenoweth notes that some investors are squeamish about profiting from companies whose business case turns on granting access to something as vital to human survival as water. But James Alexander, chief executive of the UK Sustainable Investment and Finance Association, says there is a growing consensus that if investment returns are necessary – and most people will require some kind of return in order to fund their retirements – then contributing to the resolution of a problem may be the next best thing to solving it completely. “We’re seeing increasing numbers of people who are interested in more than just profits,” he says. “They are interested in either not making the world worse or actively trying to make it a better place; in not doing harm but trying to contribute to the solution.”
In that context, the investments being made by water funds make sense. Xylem – which is named after the part of a plant responsible for transporting water from the roots through the stem and into the leaves – builds technology focused on water management and conservation. Thermo Fisher Scientific manufactures water purification systems.
That does not mean the ethical dilemma of investing in water funds is solved, particularly as building technology is not the same as deploying it. For Chenoweth, the best – and most cost-effective – way to provide access to clean water across the developing world would be to install joined-up, piped mains water systems. That would be a huge and vastly expensive undertaking that private investors would be unlikely to get involved with. “The problem that has become apparent is that private companies will only invest in the bits of the infrastructure that make sense economically,” Cullet points out.
Which is why the kind of investments WaterEquity makes are potentially so important. The organisation’s president, Paul O’Connell, says the loans it facilitates focus on giving individuals access to water and sanitation and that the impact that makes is “profound”. In India, for example, one woman who earned $1.30 a day running her own business had to take hours out of each day to collect water for her family. A loan enabled her to have a pipe installed in her house and her income immediately rose by 54 per cent. Similarly, an Indonesian family that spent $3 a week buying bottled water saw its monthly bill drop to $2 after a loan paid for a pipe and tap to be installed. As the loans are typically paid back within 12 months, after a year those gains go directly to the people involved.
“What we have is hundreds of millions of people without safe water and 2.3 billion without toilets,” O’Connell says. “Those people are spending time, energy, effort, healthcare costs on getting the basic thing we all rely on every day without knowing it. The economic return comes from the recovery of those lost opportunity costs when someone suddenly gets a toilet in their house or a water pipe in their house.”
It may not seem ethical to profit from funding something we all take for granted, and micro-loans are not a solution in and of themselves. But if investing in such schemes gives others access to clean water, improving their economic prospects in the process, would shunning such investments actually be the preferable stance? For Damon, that is the crux.“There is a solution,” Damon said in the podcast interview. “The problems of the world can seem so daunting – this cascade of problems we have – [but ] this issue is entirely solvable and fixable.”
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