Category: March 2015 – The Future of Water

Global sustainable investing assets grew 61% from 2012 to 2014 to reach $21.4 trillion

The global sustainable investment market has grown substantially in both absolute and relative terms, according to The Global Sustainable Investment Review 2014, a report released recently by the Global Sustainable Investment Alliance (GSIA) www.gsi-alliance.org

The Global Sustainable Investment Review 2014 is a collaboration between members of the Global Sustainable Investment Alliance and the Japan Social Investment Forum.

This is the second report to collate the results from the market studies by regional sustainable investment forums from Europe, the United States, Canada, Australia, Asia (ex Japan) and Japan after the inaugural 2012 review was published in early 2013.

Sustainable investing, also known as responsible investing, is an investment approach that considers environmental, social and governance (ESG) factors in portfolio selection and management. The 2014 review, like its predecessor, measures sustainable investments in all asset classes, from public equities and fixed income to hedge funds, microfinance and impact investments.

The majority of the identified global sustainable investment assets discussed in the Review— 64% —are in Europe. Together, Europe, the United States and Canada account for 99% of global sustainable investing assets identified in the Review.

Other key findings include:

“The Review demonstrates that sustainable investing is an increasingly common investment strategy worldwide,” said Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment (www.ussif.org ). “In the U.S. alone, SRI assets rose 76% over the last two years, according to our data (Download the SRI Trends Report at- http://www.ussif.org/Files/Publications/SIF_Trends_14.F.ES.pdf ). The global findings show that sustainable investment strategies are being applied across asset classes to promote corporate social responsibility, build long-term value for companies and their stakeholders, and foster businesses that will yield community and environmental benefits. We are heartened that many of our GSIA colleagues are also able to engage, as US SIF does, in working towards legislative and regulatory changes that allow for more equitable and transparent financial markets.”

About the Global Sustainable Investment Alliance

To learn more about the GSIA, visit our website at www.gsi-alliance.org

The Global Sustainable Investment Alliance is comprised of the seven largest sustainable investment membership organizations in the world:

Association for Sustainable & Responsible Investment in Asia (ASrIA ), Eurosif (European Sustainable Investment Forum), Responsible Investment Association Australasia (RIAA), Responsible Investment Association (RIA) Canada, UK Sustainable Investment and Finance Association (UKSIF), US SIF: The Forum for Sustainable and Responsible Investment (www.ussif.org ), and Vereniging van Beleggers voor Duurzame Ontwikkeling (VBDO) in the Netherlands.

The mission of GSIA is to deepen the impact and visibility of sustainable investment membership organizations at the global level. Our vision is a world where sustainable investment is integrated into financial systems and the investment chain and where all regions of the world have coverage by vigorous membership based institutions that represent and advance the sustainable investment community. The GSIA has its current Secretariat office at Eurosif in Brussels.

by Boston Common Asset Management

If you have funds to invest, you almost have certainly have access to one of the great benefits of a developed economy: clean running water. You don’t worry that you risk falling ill that by washing your hands, filling up a coffee mug, or brushing your teeth. Water is so important and so ubiquitous that, strangely, we often forget about its importance, not only to ourselves but to all of the businesses in which we invest and the communities which those businesses serve.

As unlimited and accessible as water may seem from the sinks of our homes and offices, the twenty first century has revealed more than ever that our economy and our ecosystem rest on the wise stewardship of constrained freshwater supplies. We are facing rising challenges ahead. According to projections from the research organization CDP, under current “business as usual” water management practices, approximately $63 trillion – 45% of projected global GDP – will be placed at risk by 2050. It is time for executives in every firm to realize that if water is a growing constraint, then those who enable customers to be water efficient are likely to be better performers in the long run.

The Need for Water Stewardship

Though our planet is covered with water, most of it is undrinkable. Only three percent is freshwater, much of it distributed unevenly. On the demand side, agricultural, industrial, and residential use has risen with population growth, now targeted to increase to 18.5%, to 8.8 billion people, by 2020. The World Bank forecasts that by 2030 half of the world’s population will be living in water stressed areas.  For example, India currently holds 4% of the world’s water but supports 16% of its population. Given new demand by key industries such as manufacturing and agriculture, increasing infrastructure, and growing urban populations, by 2020 India will be well on its way to becoming a water scarce nation.

Inadequate water not only threatens the prosperity of businesses, it actively harms local communities. Poor water supplies dramatically increase the risk of disease. Women often find themselves forced to carry heavy containers over great distances to obtain water for their homes and sustenance crops. Such necessary trips also expose women to attack in transit.

As water becomes more scarce, communities increasingly must compete with their neighbors for supplies, a form of “hydropolitics”. According to researchers at Oregon State University, there are 276 trans-boundary river basins in the world. While water scarcity may act as a trigger for discord between nations, superior water management can also lead to international collaboration. Over the last decade, there have been nine hostile actions, such as troop movements, in response to water supply disruption, and 394 incidents where leaders used combative language to address water management. However, there were also 580 incidents where leaders used positive or supportive language in policy talks and 250 agreements between nations to support water management projects.

Water Related Risks for Investors

Ignoring the problem of water endangers shareholder value by creating physical, reputational, and regulatory risks for businesses. The urgent biological necessity of water, combined with its deep significance in every culture, mean that people react powerfully to its absence. Water scarcity can thus raise production costs, hurt brand image, and in the extreme, impair a company’s license to operate at all in a community. If water becomes limited, companies and their suppliers may find their ability to grow, or continue operations, constrained.

Investors also underestimate the significance of water as a key input in many industries. In the energy sector, water is critical for extraction, refining and electricity generation. In the semiconductor industry, water is central in making and rinsing chips. In the apparel industry, water is used to make and rinse fabrics in laundry mills, as well as to grow cotton, which soaks up three per cent of the world’s agricultural water. Indeed, agriculture currently accounts for 70% of total global freshwater withdrawals while polluting local watersheds through effluent control and fertilizer runoff.

Water limitations may arise not only from physical scarcity or from policy and allocation decisions. When communities feel that their water is threatened, they act aggressively to protect it. The Canadian firm Barrick Gold, in pursuit of 15 million ounces of gold reserves at the Pascua-Lama mine on the border of Chile and Argentina had to suspend construction after concerns about local groundwater pollution surfaced. The company had already invested $5 billion into the project. In order to continue mining in Chile’s Atacama Desert, BHP Billiton had to built an unforeseen $2 billion water desalination plant.

Coca Cola, which sees India as an important future market, has faced challenges in multiple communities in that country around its perceived contribution to water shortages. In 2004, in Kerala, Coca Cola was unable to renew its industrial license because its operations were believed to be contributing to a drinking water shortage. In July of 2014, after concerns were raised over its use of groundwater led to regulatory delays, Coca Cola also froze the expansion of a bottling plant in Varanasi.

For these reasons, executives must learn to manage the company’s water supply not only under their direct control but also within the supply chain. Though Nike only uses 6% of its water in directly owned and operated facilities, a whopping 73% of its water use comes from the production of its raw materials, primarily cotton. Molson Coors has very minimal direct exposure to water scarcity in the actual production of beer, but the production of barley and other agricultural commodities within its supply chain account for 98% of its water use.

In addition to the potential loss of a license to operate, there are risks associated with the costs of procuring increasingly scarce water. Needing to drill deeper wells, to pipe water from greater distances, to build desalination facilities, etc., all undermine a company’s long-term profitability, shrink margins, and increase uncertainty in operational forecasting.

Corporate Water Stewardship

Though many companies emphasize water efficiency, companies must further ingrain water stewardship into their cultures and their supply chain practices. It is our role as an engaged investor to encourage firms to do so. Boston Common expects that corporate water resource management strategies include the following:

In particular, public corporate disclosure and reporting are necessary for investors to be able to assess the effectiveness of water stewardship programs. Increased corporate transparency around water accounting and reporting helps provide investors with both quantitative and qualitative assessments of their portfolio’s exposure to countries and sectors facing water risks. A number of tools have been developed to help encourage useful disclosure for investors. CERES a coalition of investors and companies focused on sustainability leadership has helped set higher expectations for how companies manage water.

Investors Addressing Water Risks

At Boston Common, we integrate water concerns into our portfolio construction process. We also actively engage with companies held in our portfolio to help them understand their exposure to water risks and adopt appropriate policies and procedures within their operations and supply chain.

Portfolio Construction

Water use and management are criteria used in evaluating potential risks and opportunities of our portfolio companies and prospective investments. We work to identify companies that integrate a water resource management strategy into their business planning. We also seek industry leaders that develop innovative products and provide solutions that help tackle water pollution, improve water quality, enable water efficiency and increase water savings.

“Solutions Companies”

Currently, approximately 5% of Boston Common’s global strategy is invested in companies that are involved in water, waste water quality, or water management product offerings. We evaluate these revenue streams on a case-by-case basis. Some examples of past or current investments include companies that lead in home drinking water systems (3M), develop water purification and sewage treatment plants (Kubota), or develop non-potable water sources for their hydraulic fracturing operations (Apache), amongst others. We also look for companies leading in their direct and indirect water use management, such as Unilever which has conducted a baseline assessment of supplier water use and is working with a subset of its contractors to reduce their water use.

Active Ownership

As long term oriented investors, Boston Common also partners with companies and a wide range of stakeholders to encourage greater attention to the risks and opportunities relating to water. As investors, we encourage industry-wide responses to water scarcity. This has included encouraging companies, particularly those in Asia, to respond to the CDP Water survey. For many Asian companies the CDP Water Survey is a starting point to begin to assess and manage water resources within their own operations and their supply chains.

Boston Common has also helped to establish best practice standards for the fracking industry to reduce water use and encourage water recycling. We have also worked with the Interfaith Center on Corporate Responsibility (ICCR) to develop resources around corporate community consultation practices. Boston Common has worked directly with individual portfolio holdings such as Veolia and PepsiCo to discuss access to water and sanitation as a human right and J Front Retailing and VF Corp to examine water management in the supply chain.

Looking Forward

At Boston Common Asset Management, we care about water management from many angles; as investors, environmentalists, and humanitarians. With every passing year we are learning that growing water scarcity poses serious risks for businesses and communities alike. Industrial activity, unsustainable consumption, and pollution have all put pressure on global water reserves and availability. In addition, climate change related events, such as extreme droughts and frequent floods, have further exacerbated the water crisis, making water flows inconsistent and unpredictable.

We can no longer afford for this life-giving resource to be invisible and taken for granted. To be good stewards of their assets, investors, corporate board members, and policy makers must increase their attention to water and the essential role it plays within healthy ecosystems and economies. We must tap the power of measuring, reporting, managing, and wise stewardship to make progress. Otherwise, as Joni Mitchell sang at the beginning of the environmental movement, “we won’t know what we’ve got ‘til it’s gone.”

Article by Boston Common Asset Management, an investment manager and leader in global sustainability initiatives. The firm’s unique investment process enhances conventional investment analysis with its proprietary Environmental, Social, and Governance (ESG) framework. Through targeted engagement efforts, Boston Common seeks to improve transparency, lower business risks, and promote long-term thinking by corporate management.  Since its inception in 2003, Boston Common has built a strong investment record and has meaningfully improved corporate practices in the U.S. and abroad. For more information go to- www.bostoncommonasset.com

The information in this document should not be considered a recommendation to buy or sell any security. There is no assurance that any securities discussed in this report will remain in an account’s portfolio at the time you receive this document. The securities discussed do not represent an account’s entire portfolio and may represent only a small portion of an account’s holdings. It should not be assumed that any securities transactions we discuss were or will prove to be profitable. Past performance does not guarantee future results. All investments involve risk, including the risk of losing principal.

Impax’s approach to investing in water infrastructure and technologies, and why it is important to all of us.

by Simon Gottelier, Director and Water Specialist at Impax Asset Management

The ever increasing need for water, but an ever tightening global supply will ensure that companies active in the water sector will benefit from strong growth spanning many decades. At the same time, concern about global water safety and quality is growing. These issues are galvanizing the investment case for the water sector.

Four Key Growth Drivers

We see four key drivers that support our conviction for investing in water:

Robust Growth From Developed and Developing Markets

We expect developing markets, to make a substantial contribution to the earnings of companies in this sector. For example, in China, proposed spending to address the country’s dire water pollution and scarcity issues is likely to exceed the outlays on cleaning up air pollution. Asia’s fight against water pollution will also generate business for developed market companies. Malaysia, Vietnam and in particular India, also require substantial investment in water supply. In our view, companies that can win a share of this business currently present particularly interesting investment opportunities. For example, demand for the pumps, pipes and valves required in water infrastructure construction is rising steadily at two percent to four percent a year globally; while demand in developing markets is rising by 10 percent to 15 percent.

In developed nations there has been significant underinvestment in repairs and upgrades over many years, especially to urban infrastructure, much of which was built in the late 19th and early 20th centuries. The useful life of these systems is considered to be around 60 to 80 years; massive spending on modern replacements is urgently required in many countries.

Diversification Across the Value Chain

To enhance long-term investment performance it is important to hold a broad range of stocks across the different water sectors and industries. We research a large and rapidly expanding universe of water companies, with a combined market capitalization of some $0.7 trillion [Note 3], active in both developed and developing countries and in cyclical markets such as construction and non-cyclical markets such as water treatment.

Water is a highly regulated industry. As water safety regulations intensify it is critical to understand local government policies and their impact on the water sector in making all investment decisions.

Investing Over Economic Cycles

To sustain performance over the long term, it is important to have a diversified, actively managed portfolio of water stocks, each researched in-depth but at same time understanding the macro-economic backdrop, and the impact this can have on performance. The exposure to different parts of the water value chain will vary according to the macro-economic climate and prospects for global and regional growth. For example, water utilities are known as defensive, non-cyclical investments. They are highly regulated, and this gives rise to good earnings visibility and earnings tend to be pretty stable. Their consistent revenues are often considered to be an effective inflation-hedge. Such qualities make utilities attractive when the economic climate is gloomy. In more upbeat times, infrastructure capital expenditure, which is closely linked to activity in the construction market – particularly house building and municipal spending – tends to pick up. As an area that tends to be more cyclical, especially in developed regions, construction would get greater attention in the portfolio in an economic recovery.

Investing in New Technologies

It is our fourth theme of increased incidence of more extreme weather events that is currently giving rise to a number of interesting new investment opportunities. Of particular note are some new technologies that have been developed to counter the severe drought that is being keenly felt in some of the southern states in the US, with California currently suffering its worst drought in forty years. The University of California Davis estimates that there could be a potential cost of $1.7 billion to the local agricultural industry as a function of the drought that they are experiencing.

Brackish water, reverse osmosis, or desalination technologies are beginning to look economically viable and more interesting. The grey water product of this output is used for irrigation within some of the more stricken agricultural regions in California, where many scorched acres are now lying fallow, and for many industrial processes. Reverse osmosis desalination of seawater for potable water looks to become an interesting solution in the longer term. As energy costs have become cheaper, and the technology improved, the cost of desalination (which until recently was prohibited for potable use) has become a lot more palatable. It’s now about twice the price of regular extraction of water source, such as a lake or a river. Secondly we think the crisis in California is becoming so severe that there are in excess of 15 projects that are being scheduled for commissioning up and down the California coast. For example, there is a $1 billion private equity owned facility at Carlsbad, just outside of San Diego, which will be commissioned by early 2016. This technology looks set to have very real potential as a mid- to long-term opportunity.

Furthermore, there are a number of aquifer recharge projects under development in California to replenish depleted aquifers. Wastewater is treated and re-injected back into the aquifer to be reused for potable water processes. Previously this dirty water would have been left untreated and pumped out to sea.

Arguably, the best way for investors to access this growth story is by investing in companies that supply technologically advanced components and also advise these businesses. For example: pump companies, membrane filtration businesses and the environmental consultants that are involved at every point within the construction process of such a facility. As we endure more extreme weather conditions around the globe, we need to find solutions to the issues they produce. We continue to research investments in new technologies, designed to ease water shortages in severely drought stricken regions.

M&A Activity (Mergers & Acquistions)

There is considerable evidence that the attractions of acquiring high-growth, niche-focused water sector businesses remain compelling and recent transactions have underpinned our investment case. We believe that the next couple of years could yield a new round of M&A activity, potentially providing a fresh flush of appealing returns for investors. Companies with specialist technologies such as environmental testing and sensing look to be particularly interesting targets.

In conclusion, the recent outperformance of the water sector has yielded consistent risk-adjusted returns for investors. Furthermore, the broadening gap between water supply and demand will continue to fuel the need for more effective solutions in water utilities, infrastructure and technologies around the world. Significant progress comes at a cost and the sector will need substantial future capital investment, making water a multi-decade investment opportunity that looks set to outperform over the longer term.

by Simon Gottelier, Director and Water Specialist at Impax Asset Management (www.impaxam.com )

Simon joined Impax in 2004 and co-manages the Leaders and Water Strategies, as well as selected clients’ SRI/ESG products. Simon previously worked at Veolia (formerly Vivendi) Environment, where he was a Financial Analyst. His responsibilities included the analysis and modeling of potential investments and financing issues on the part of the Group’s water businesses.

Simon began his career in Investment Banking in 1998 at NM Rothschild and subsequently moved to Deutsche Bank where he provided strategic, M&A and financing advice to European and US clients across a broad range of industrial sub-sectors. He has an honours degree in Modern Languages from the University of Bristol.

Article Notes

[1]  http://www.overpopulation.org/water.html
[2]  http://nepis.epa.gov/Adobe/PDF/P1005TBX.pdf
[3]  Impax, Factset

This material has been prepared by Impax Asset Management Limited and Impax Asset Management (AIFM) Limited (“Impax”, authorised and regulated by the Financial Conduct Authority). Both companies are wholly owned subsidiaries of Impax Asset Management Group plc (registered in England & Wales, number 03262305) and are also registered investment advisors with the SEC. Registration does not imply a certain level of skill or training.                       

By Nate Downey, Founder, Santa Fe Permaculture and Author, “Harvest the Rain”

As news broke of an oil pipeline leak above the Yellowstone River, the 6,000 residents—and myriad species—of nearby Glendive, Montana were wondering how long their water would remain deadly. From my stormwater conference hotel room, all I could do was share the nightmare online, drink some tap water, and close my eyes.

At dawn, I jumped out of bed. Intending to put some finishing tweaks on my presentation, I found myself staring through a thin, Houston fog. Just beyond a five-story garage and the already busy interstate, strange images were appearing through my wall-to-wall, floor-to-ceiling window.

Looking west, I could distinguish the dwindling rivers, disappearing reservoirs, and declining aquifers of Texas. I saw the desiccated acequias of New Mexico, the burning forests raging through Arizona, and the parched weed plantations covering Colorado. Snowless ski resorts scarred Utah. Empty swimming pools dotted Nevada. California? The Sierras were golden brown, like so many farms, lawns, and golf courses below.

Pivoting south, much of the Gulf Coast was heavily peppered with overdevelopment, wetlands abuse, and increasingly briny aquifers. Worse yet, the salty prospect of desalination—its enormous wastes, real dangers, and huge costs—loomed on the not-so-deep horizon, clenching and flinching like a drowning animal.

Moving east, I pictured pallets of bottled water trucked to Charleston. Thanks to a Freedom Industries chemical spill last year, 300,000 West Virginians were prohibited from using their taps for five days. Meanwhile, just up I-75, the mayor of Toledo was comparing last summer’s Lake Erie algae bloom to the events of 9/11. (If half a million of your constituents suddenly went waterless for three days, you’d understand.)

Facing north, I imagined the ever-shrinking Ogallala Aquifer. The largest water source for America’s breadbasket is slated as a possible continental crossing point for the Keystone-XL pipeline. Ironically, one pipe scheme would send tar sands across the fabled Yellowstone, just upstream from Glendive.

Fortunately, before my nightmare spread to the rest of the world, my copy of Aldo Leopold’s A Sand County Almanac caught my eye, prompting calmer thoughts. Leopold, who died in 1948, a year before his almanac was published, realized that the trick to saving humanity from itself would revolve around an ethical “harmony,” a balance between economics and ecology. Ultimately, he said, our ethics should evolve to a point where “land” (soil, water, mycelium, bugs, plants, animals, and everything in between) gets a right to exist and to freely pursue a healthy and contented stability.

It’s the same trick today, but we have come a long way in bridging the gap between the monetary “value of a thing,” and the “things we value,” cherish, or love. During the last 10 to 15 years, the transformations toward solar and wind energy, hybrid-engine technology, organic and local food, green infrastructure, new urbanism, and socially responsible investing are proof of Leopold’s concept: Harmony between economic and ecological forces can happen, and it can be powerful.

As a veteran permaculture landscape designer and longtime water-harvesting professional, my work has allowed me to witness the growth of the water harvesting industry over the last two decades. Given the aforementioned water stresses, the industry seems poised to be the next great harmonizer of the same eco-versus-eco dialectic. Ecological and economic benefits abound almost as soon as we pick up a shovel, see our roof as a resource, or consider an ethical landscape design.

Water harvesting is the act of collecting and using water, especially precipitation, before it becomes part of a surface water system (in rivers, reservoirs, etc.) or groundwater system (in aquifers). However, other often-neglected types of water, such as wastewater and condensation, also become part of a water harvester’s playbook.

Water harvesting is referred to with words like  “capture,” “catchment,” “collection,” and “storage.” These are often associated with “precipitation,” “roof water,” “runoff,” “rain,” “rainwater,” “sheet flow,” and “stormwater,” as well as most hybridizations of the above.

Storage systems come in four forms: Passive, Active, Wastewater-focused, and Community-oriented.

Passive systems store water in the soil where plant material can easily access it. Rain gardens, wicks, key lines, French drains, dry wells, sheet mulch, check dams, and sophisticated land contouring are examples. Investment costs are relatively low compared to active systems, but harvesting is less precise in time and space.

Active systems store water in cisterns for later use. They are considered active because a pump with moving parts is typically involved. Significant upfront costs are often associated with active systems, but the harvested water can be automatically directed toward any usage imaginable.

Wastewater systems recycle greywater (everything but the kitchen sink, the dishwater, and the toilet) and black water (all forms of sewage). Often neglected and feared, wastewater can be harvested in passive and active systems depending on the needs and desires of the land and its human inhabitants.

Community water harvesting includes teaching, investing, political organizing, public tree-planting projects, community gardening, lobbying efforts, marketing campaigns, and any other form of spreading information about the importance of harvesting precipitation.

Harvested water can be treated to meet any standard. It can be used to grow food and other crops, to create shade and wind protection, and to offer beauty and biodiversity to the world. It is also critical to understand that harvesting upstream precipitation is also good for people downstream who otherwise get inundated by stormwater runoff caused by conventional forms of human development.

Water harvesting represents a perfect storm of economic activity by which a vital and often scarce resource is conveniently tapped. However, this mostly neglected water supply is more than a fleeting tempest capable of merely lubricating or stimulating a market. It’s an economic engine made up of six powerful pistons:

The true economic strength of water harvesting, however, comes from the fact that it has the potential to create large numbers of new jobs in a wide variety of ways. Given the sheer number of roofs and roads without water harvesting systems, a rainwater revolution would not only help in terms of the sheer numbers of projects begun, but also by the fact that these jobs are local, permanent, and have a multiplier effect on other local employment sectors.

Let’s first look at water harvesting’s relationship to manufacturing. Due to the costs of transportation of large water tanks, it is hard to think of any product that is any harder to make more inexpensively overseas. Although certain types of cisterns can be economically imported, it is often cost prohibitive to move large, heavy, empty containers over long distances. The sheer size of a water tank creates a need for nearby fabrication.

On the design and installation side of every project, employment associated with the construction of roof water harvesting is even less easily outsourced. An installer’s job, by definition, is a local job. Plus, rain capture, like construction, supports employees of local hardware stores, garden centers, lumberyards, and take-out-food joints.

Precipitation collection systems also generate a long-term career creation multiplier. Who will take care of the landscapes that grow because additional water is available? Who will maintain the systems themselves? Who will invent, inspect, finance, insure, market, and test these systems? Who will sell the additional real estate that has increased in value because of the precipitation redistribution revolution? The revolution may not be televised in the traditional sense, but crews will need to be paid to take and direct the professional documentary footage, to mix the sound, and to produce and promote the next pivotal videos of our time.

Moreover, the entire land development industry is currently being transformed by a wide variety of technologies from drones and robotics to ever-improving LIDAR, GIS, and GPS systems. This not only allows for water harvesters to get a jumpstart during a time of increased efficiencies, but it also allows for more interface between clean tech jobs and ecological projects in the real world.

These mostly green collar jobs represent skilled and worthy long-term career options as well as an endless array of potential entrepreneurial enterprises. The six pistons, above, support this job market with their ability to create assets and grow wealth out of substances, stormwater and wastewater, that are typically considered to be pollutants.

Leopold knew that the land ethic he was proposing was in an embryonic stage. People like you and me would come after him and take his thoughts and actions (as a scientist, teacher, ranger, farmer, rancher, hunter, and family man) and improve them. Water harvesting does this and does it more efficiently and productively than most other pursuits.

Article by Nate Downey, who is—by night—the author of Harvest the Rain: How to Enrich Your Life by Seeing Every Storm as a Resource (Sunstone Press 2010) and has written a column called “Permaculture in Practice” for the Santa Fe New Mexican since 1998. By day—the former chairman of the board of the Permaculture Credit Union—is the founder, president, and lead designer at Santa Fe Permaculture, Inc. and PermaDesign, Inc. Look for his work featured in Sunset Magazine, Su Casa, The Santa Fean, Haciendas, Trends, New Mexico Magazine, and at www.permadesign.com

Article – February 2015 Copyright

Permission to publish granted to GreenMoney Journal

Six years after the launch of the Calvert Global Water Fund, water remains a serious sustainability challenge and a significant investment opportunity.

By Matthew Sheldon, Portfolio Manager, Calvert Global Water Fund, Kleinwort Benson Investors International Ltd; and Stu Dalheim, Vice President, Shareholder Advocacy, Calvert Investments.

As pressures on our planet’s water supply mount, investing in water infrastructure and technologies offers strong upside potential while contributing to a more sustainable world. However, smart investment in water involves more than just buying shares in utilities and filtration companies. Water is the sustainability issue that transcends social values, yet investors are only beginning to recognize the linkages between water sustainability, economic value, and the investment opportunities in companies creating innovative water product and service solutions.

Just as the climate change conversation has moved from a debate over the basic science to more sophisticated considerations of mitigation and adaptation, so too has the water conversation evolved. And yet, we still find that its translation to an investment strategy has lagged. A survey of the landscape reveals the significance and complexity of the problem.

The Blood of Life, Running Dry?

The World Economic Forum, or WEF, publishes an annual report that assesses the evolution of a comprehensive set of global risks, and the mechanisms by which they can become systemic. The WEF surveyed 900 leaders and decision-makers for its 2015 edition. This year, after steadily climbing the charts, water crises ranked as the single greatest risk in terms of impact. Indeed, water crises trumped such other serious risks as the spread of infectious disease and the failure of climate change adaptation.

Last year, the journal Bioscience published the results of its survey of more than 600 environmental decision-makers and scientists in the United States, analyzing their research priorities for natural resources management over the next decade. The number one research question was, “What quantity and quality of surface and groundwater will be necessary to sustain U.S. human populations and ecosystem resilience during the next 100 years?” The answer remains to be seen, but the urgency is clear.

Various factors have converged to put us in this position, chief among which are the following:

The WEF’s Global Agenda Council on Water Security explains how these issues have already played out in dramatic and devastating fashion. In 2011, flooding in Thailand slowed down global automobile production and severely disrupted the computer hard-drive supply chain. The tsunami in Japan that same year compromised global industrial production. All of that is what happens when there’s too much water. The reverse is also devastating. Russia restricted agricultural exports in 2010 in response to drought, which sent staple-grain prices soaring across the Middle East and North Africa. The WEF observes, “The resulting food shortages and price rises aggravated the tensions that led to the Arab Spring.”

A New Fund, a Novel Strategy

In light of this situation, Calvert (www.calvert.com ) felt strongly that launching a water fund was important, both because it offered a strong value proposition for our investors, and because it advanced our efforts to invest in long-term solutions to the world’s sustainability challenges. We launched the Calvert Global Water Fund in September 2008.

Water: a Fundamental Human Right

We think that pricing this valuable resource is necessary, but at the same time, we think it is critical to recognize water as a fundamental human right. Prices will necessarily go up, because water treatment and transportation costs continue to rise as infrastructure ages and eventually fails. This is why we are investing in a broad range of solutions, including treatment, chemistry, pipes, pumps, valves, and everything that gets water from the source to the factory. The price of all of those keeps increasing, which presents the essential investment case for water.

Water is unique as an investment theme, in that there is no such thing as a water sector. There are different products across industries, and it amounts to a collection of niches with different regulators and a disparate and fragmented playing field. As a result, our investment universe includes an incredible variety of companies. Since the fund’s inception, we have never bumped up against constraints on our ability to find good ideas. There has always been an available pocket with a good risk/reward balance.

So Much More Than a Sector Fund

Many people still operate under the misconception that a water fund is a sector fund, which is simply not the case. The distinction is important. The energy sector, for instance, is oil driven, but 20 different high-level issues drive a water fund. Some investors are looking for a natural resource play, others want exposure to infrastructure, and still others are focused on sustainability. A well-managed water fund has the potential to meet all of those needs. Ultimately, the water theme is an ecosystem, which is why Calvert’s management approach benefits from our research perspective.

It is important to understand that this is a long-term investment. We are dealing with a multi-decade problem that requires multi-decade solutions. The water crisis is getting more and more acute every day and, in the water space, there are numerous themes that have not gotten traction yet.

In addition, over the life of our portfolio, Mergers & Acquisitions (M & A) activity has provided a tail wind year by year. Given balance sheet commentary and economic logic, we expect M & A activity to pick up again in 2015 after the relative silence we have experienced recently. Such activity tends to attract people’s attention, so the coming year may well be a dynamic one.

The Bigger Picture

Broader engagement with companies around water is also an important part of our overall strategy. Indeed, the Calvert Global Water Fund is the only U.S. water fund we know of that engages holdings on ESG issues, with strong support for the promotion of the human right to water. We encourage improved disclosure of water risks and strategies, and we urge companies to consider water more broadly, for instance as it relates to climate change and human rights issues.

Water services and technologies often have poor disclosure around water, particularly in the case of those technology companies that are not consumer facing. The water space is also an area where companies need education about how best to disclose, and what metrics to use. It is highly challenging to measure and disclose water risks and strategies in a way that makes sense to broad audiences, as water is a local resource with local impacts.

For instance, Calvert filed shareholder resolutions with ITRON, Flowserve, and Aqua America, asking them to improve their sustainability reporting. Each does so now, and they address such topics as environmental health and safety, water use, energy use and emissions, community impacts, and employee programs such as diversity and employee engagement. Calvert has engaged companies such as Coca-Cola and PepsiCo on the human right to water through the CEO Water Mandate, a multi-stakeholder initiative that includes corporations, NGOs, and a few investors – Calvert was the first to join – working to agree on best approaches to corporate water stewardship.

On the subject of water’s connection to climate change, Calvert has engaged American Water Works a large, publicly traded water and wastewater utility – regarding concerns that they were not paying sufficient attention to climate change risks. After discussions with senior management we determined that the company is in the process of strengthening its existing reporting and already benefiting from efforts to modernize their systems and adapt to climate change.

Calvert has also engaged companies, especially those that rely on agricultural commodities on water risk, including Hanes Brands. The company undertook a water risk assessment in its cotton supply chain and its manufacturing operations, describing efforts to reduce risks, environmental impacts, and water use.

Water For Life

We use our expertise not only to offer an appealing investment prospect, but also to drive change toward more sustainable business models. The water crisis will be with us for a long time to come. We intend for this fund to be part of the solution, while providing attractive returns for our investors at the same time.

Article By Matthew Sheldon, Portfolio Manager, Calvert Global Water Fund, Kleinwort Benson Investors International Ltd. and Stu Dalheim, Vice President, Shareholder Advocacy, Calvert Investments.

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

By Brooke Barton, Senior Director, CERES Water Program

The world is getting thirstier and we’re fast running out of ways to quench it.

A rapidly growing population, too many competing demands, and climate change impacts are creating a water availability emergency that the World Economic Forum recently ranked as the world’s “top global risk.”

The fact that more than one billion people already live in water-stressed regions – and that this number is expected to double or triple by 2025, according to the UN – is just one dimension of this colossal threat.

There’s also social and economic disruption. California is now in the fourth year of a devastating drought that left a half-million acres of farmland unplanted last year, causing more than $1.5 billion of economic losses. Water-deprived Texas is riding the wave of a hydraulic fracturing boom, but it’s leaving less water for farmers and communities. Meanwhile, China’s water problems are already costing the country about 2.3 percent of its annual GDP.

“So much of life is affected by what happens with water,” said Robert Sandford, a leading thinker on water in Canada, speaking at this year’s World Economic Forum. “We didn’t realize until recently how much our economy and society relied on hydrologic stability.”

Tackling these global water challenges will require a major shift in how freshwater is managed, allocated, priced, litigated and, ultimately, used. It means finding regulatory and market mechanisms that ensure water’s true worth — to human life, ecosystems as well as economic well-being — is appropriately valued.

Re-thinking how we value water is a critical first step. Water is a finite and precious resource, but our economic systems treat it as limitless and of little value. For many companies and other water users, their water bills are so small that it hardly seems worthwhile to conserve. The result is unsustainable water use across much of our global economy — from industry to agriculture to homeowners.

Ceres is bringing unique capital market solutions to these challenges. Through cutting-edge research and direct engagement with the business community, we are pushing to change the way that companies and public entities manage water, and the way that investors consider water availability and water quality risks in their investment decisions. One of our key pillars for working with the business sector is the Ceres Aqua Gauge, which provides an easy and efficient way for companies to assess and improve their water risk management strategies.

In the United States, we are focused on three key sectors that use the vast majority of the country’s water — public water utilities, the energy sector and agriculture. Taken together, these sectors are responsible for more than 90 percent of the nation’s water consumption. By improving their water practices, we can build an economy that protects freshwater for future generations.

Agriculture has long been the country’s biggest water user, especially in the Midwest and West, where many of our primary food staples are grown. California’s agriculture sector alone generates $36 billion a year of revenue and produces nearly half of US-grown fruits, nuts and vegetables.

No doubt, American farmers are using water more efficiently. A recent study by the US Department of Agriculture, for example, showed a 9 percent drop in the irrigated water use nationally since 1998. Still, with increasingly intense droughts and groundwater supplies under pressure like never before, the industry’s overall water footprint is not sustainable, creating long-term risks for ecosystems and the economy alike.

Ceres has been especially focused on the corn sector, the nation’s biggest crop by far. Last year U.S. corn growers harvested a record 14.2 billion bushels, using one-third of America’s cropland (an area twice the size of Florida.) Nearly 40 percent of the corn is for feeding cows, pigs and chicken, with another 35 percent being sold to ethanol refiners to meet government-mandated blending requirements for our nation’s gasoline supplies. Less than 10 percent is for direct human consumption

But, as a Ceres report released last year makes clear, the corn sector’s water practices are taking an enormous toll.

The industry uses vast amounts of fertilizer, far more than any other agriculture sector. In states like Iowa, nitrate runoff is polluting streams, rivers and water supplies – so much, in fact, that the Des Moines water utility recently threatened to sue three counties for polluting its primary water source, the Raccoon River. Corn-related runoff is also the single largest source of pollution to the Gulf of Mexico’s “dead zone,” an area the size of Connecticut that is essentially devoid of life.

Lack of water is another problem, especially in Kansas, Texas, Colorado and Nebraska, which rely on fragile groundwater aquifers to irrigate their cornfields. The Ceres report showed that more than half of the country’s irrigated corn production, worth more than $9 billion a year, depends on groundwater from the Ogallala aquifer where groundwater levels are declining.

Unfortunately, climate change will likely add to these pressures. Numerous studies conclude that the negative impacts of climate change on agricultural production in the Midwest will outweigh the positive impacts.

Tackling these wide-ranging water challenges requires stronger state and federal regulations, but progress in this regard has been painfully slow. Ceres believes the biggest catalyst for change is the industry itself – in particular, the food, feed and energy companies which buy most of the nation’s corn and have an enormous stake in ensuring that corn production is reliable and sustainable.

Companies such as Coca-Cola, General Mills and Unilever have all set voluntary goals to sustainably source all of their priority agricultural ingredients – including corn – by 2020. With our guidance, PepsiCo has launched a sustainable farming initiative that aims to reduce water and fertilizer use by its growers all over the world. We’re also encouraged by public/private partnerships such as Field to Market, which recently announced an ambitious effort to accelerate sustainable growing practices on 20 percent of the nation’s farmland — 50 million acres — by 2020.

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How the country’s tens of thousands of public water utilities manage water use by residential and business customers is another key focus of Ceres’ work.

U.S. water utilities have long operated on the assumption of ever-increasing water demand and limitless water supplies, which meant they could sell more water, which meant they would have more revenues to pay their bills. That assumption worked in the 20th century when water was cheap and plentiful, and the federal government was willing to bankroll expensive water supply projects that made cities like Los Angeles and Phoenix possible.

But times have changed. Water supplies in many parts of the country, especially the arid West, are dropping like the rings on an emptying bathtub. And developing new water sources is becoming far more costly, the result of federal funds drying up and the water itself needing to be piped longer distances.

The San Antonio Water System, for example, recently signed a contract with a Spanish company, Abengoa, to build a 140-mile-long pipeline at a cost of $3.4 billion to move groundwater across Central Texas to San Antonio.

For the past few years, Ceres has been highlighting the financial risks of going further afield for water, beginning with its groundbreaking 2010 report, The Ripple Effect: Water Risk in the Municipal Bond Market. The report, done in collaboration with Water Asset Management, is designed to help bond-rating agencies; utilities and investors understand the long-term financial risks of trying to manage water shortages by building new water supply projects.

But Ceres also recognizes that utilities need better tools to avoid these costly projects while meeting future water demand.

Many utilities are raising water rates and enacting water conservation programs to limit to water demand. These approaches are sensible in many ways, but they have an unintended consequence: decreased water use reduces the revenues that water utilities need to pay their bills.

Clearly, water conservation is a far less costly approach to managing limited water availability than expensive new water-supply projects. But water utilities, which traditionally balance their budgets based on how much water they sell, must then shoulder the burden of too little revenue.

Ceres is working with utilities to solve this financing conundrum. Through the CFO Connect project, Ceres is working directly with water utilities in Colorado, Utah and Texas to develop new pricing models that will allow them to achieve a dual goal of revenue stability and water conservation that will reduce long-term water costs for consumers.

A shining example of this is Aurora, CO, which in response to a prolonged drought replaced its traditional water pricing structure with a block rate system. An average-sized home now pays $5.27 per thousand gallons if it uses up to 20,000 gallons, $6 per thousand gallons for up to 40,000 gallons and $7.50 thereafter. The city has also changed its water connection fees by charging less if it’s a small home with xeriscaping (landscaping that doesn’t require watering) and more if it has a big house with a large lawn.

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Hydraulic fracturing energy production, which uses significant water for each of its oil and gas extraction wells, is the new kid on the block in tapping the country’s limited freshwater resources.

A report issued by Ceres last year showed that the industry is using significant amounts of water in parched states like Texas and Colorado where fracking is booming.

Based on water-use data from nearly 40,000 fracking wells, the report showed that over 55 percent of the wells were in regions experiencing drought and 36 percent in regions with significant groundwater depletion. Water-use impacts were especially large at local levels, sometimes exceeding the water used by all residents in some Texas and Colorado counties.

The report has had an important role in motivating local communities and policymakers to look more closely at the industry’s water sourcing impacts and the urgency for reducing them. Texas is especially focused, for example, on minimizing groundwater impacts and examining current groundwater permitting loopholes, which allow companies to use as much water as they want for fracking. California has improved its water sourcing reporting requirements and is scrutinizing the practice of providing industry exemptions in an effort to protect vulnerable aquifers from fracking-related wastewater disposal.

The report has also helped in getting improvements from the industry itself, such as the company Apache, which is now recycling 100 percent of its fracking wastewater in key regions, such as the Permian Basin in West Texas.

Clearly, however, the industry should be doing more to substantially improve its on-the-ground practices. Failing to do so will almost certainly put the industry’s growth and limited freshwater supplies in states like Colorado and Texas on a collision course.

Article by Brooke Barton, senior director of Ceres water program. For more information, visit www.ceres.org/issues/water  or follow on Twitter  @ValueEveryDrop  or  @BrookeDBarton

Brooke leads Ceres’ water program, directing the organization’s research and corporate and investor engagement on the risks and opportunities related to growing water scarcity. She is the co-author of “The Ceres Aqua Gauge: A Framework for 21st Century Water Risk Management” and author of the 2010 Ceres study with Bloomberg and UBS looking at corporate water disclosure, “Murky Waters: Corporate Reporting on Water Risk”. Brooke also works with Ceres company members in the food and beverage sector, advising them on sustainability strategy and reporting, and coordinating dialogues between companies and their investor, NGO and labor union stakeholders.

Prior to Ceres, Brooke was a researcher for the Harvard Business School’s Social Enterprise Initiative, where she wrote case studies and articles on the CSR strategies of multinational corporations in developing countries. While at Harvard, she co-edited Business Solutions for the Global Poor: Creating Economic and Social Value, a book examining over 20 business models for serving low-income consumers. Brooke’s other professional experience includes communications and advocacy work with ACCION International, a microfinance NGO, and project evaluation with Catholic Relief Services in Bolivia. She holds a master’s degree from the Fletcher School of Law and Diplomacy, and a B.A. in economics from Duke University. She speaks Spanish and Portuguese.

By Garvin Jabusch, Co-Founder, Green Alpha Advisors and Co-Manager, Shelton Green Alpha Fund

Everyone now knows global freshwater risk is real. Will water prove a chokepoint that stymies world economies? We have to concede that it could, affecting as it does, agriculture, energy, all forms of production, and, oh yeah, since it’s the primary basis for life on earth. This makes water issues intimidating, but also means that figuring them out will provide the most dynamic and profitable areas for seeking investment opportunity for years, if not decades, to come.

Fortunately, the topic is finally being discussed with a gravity proportionate to its potential outcomes. The World Economic Forum (WEF), for example, recently named “water crises” as their number one 2015 global financial risk in terms of impact, and their eighth highest risk in terms of likelihood.[1]

Specifically, the WEF report warns of “a significant decline in the available quality and quantity of freshwater, resulting in harmful effects on human health and/or economic activity” and of a “deterioration in quality of air, soil and water from ambient concentrations of pollutants and other activities and processes.” Not that we needed a bunch of one-percenters to tell us there’s a water crisis, but their research group does good work. To cite just three statistics from the report:

Further, according to the World Resources Institute, “we have exploited surface water to the point that thousands of rivers have literally vanished from the map.”[2]

Meanwhile, down in Brazil, we can see more dramatic effects. The drought there has become so severe that population centers are at times receiving no municipal water, and the energy-water nexus has been debilitated to the point that “hydroelectric facilities that supply power to Brazil’s most densely populated city of Sao Paulo are nearing zero capacity.”[3] Which, in turn, means a reversion back to fossil fuel use for electricity, contributing to a negative-outcomes feedback loop.

Again, according to WEF, “the effects associated with climate change will put further pressure on societies. Its expected impact on the ability to grow food and access water could prompt sudden and uncontrolled population migrations, putting additional pressure on receiving countries,” and “global water requirements are projected to be pushed beyond sustainable water supplies by 40 percent by 2030.”

What do scientists think? Intergovernmental Panel on Climate Change (IPCC) Chair Rajendra Pachauri recently remarked that “if you look at agricultural products, if you look at animal protein – the demand for which is growing – that’s highly water intensive. At the same time, on the supply side, there are going to be several constraints. Firstly because there are going to be profound changes in the water cycle due to climate change…Naturally, this (water crisis) is also going to lead to tensions – probably some conflict between riparian groups and riparian states.”[4]

All this, unfortunately, is just a small sample of the water issues emerging worldwide and what folks are saying about them. To get a bigger picture, I recommend the frightening read that is the U.S. National Intelligence Council’s Global Water Security report.[5] They foresee the nexus of food, water, energy and climate change as a key mega trend that will define the world, and not for the better, unless dramatic changes happen now.

Big, existentially scary stuff.

Globally, we’re at least beginning to talk the right talk about finding solutions. Well and good, but how will we translate this sense of urgency into means of mitigation, adaptation and investment opportunities? Can the three be aligned or will doing something about resource scarcity issues surrounding water be a governmental or even supra-national task? The answer is and must be ‘all of the above.’ Monitoring, treating, measuring, managing, conserving, transporting, storing and making new freshwater will all be parts of the aggregate solution, and all do and will feature innovative companies making it happen, hopefully in close cooperation with policy and science.

How big is the opportunity in the short term? “By 2030, global food demand is set to increase by 50 percent, energy demand by 50 percent and water demand by 40 percent. The necessary focus on water treatment, management, infrastructure and supply could lead to a water market worth over $1 trillion by 2020,” according to analysis by Merrill Lynch.[6]

A trillion dollar market emerging in just the next five years sounds like fertile investment ground to me. So, what areas do we look at in terms of identifying opportunity? Well, there are several broad categories:

Monitor It and Measure It

Perhaps the most important single thing we can do to manage water is know what’s in it, how much of it we have, and how much we need for given uses. In other words: monitor it.

Why is this important? Because water safety of both publicly and privately owned reserves and sources is at risk globally right now, including in the United States. Let us remember that Halliburton managed to punch a loophole for fracking through the Safe Drinking Water Act.[7] Not only are fracking operations exempt from the Act nationally (The San Francisco Chronicle just ran a piece revealing that California has for years knowingly let oil and gas operations inject chemical-ridden wastewater into freshwater aquifers – even during the current drought)[8], but in some states, there are criminal penalties awaiting any insider who divulges what is in fracking chemicals.[9] Frackers and others whose use of water renders it undrinkable have routinely outbid farmers and municipalities at water rights auctions. So, knowing what comes out of the tap or waters the farm is critical. Here, we look for opportunities in scientific equipment makers, specifically analytical systems solutions.

Next, measurement and the ability to then carefully use water in agriculture and other industries means big savings of this valuable resource. The idea of “more crop per drop” is the motto in this world, and we like providers of drip irrigations systems and hygrometers that let farmers know, down to the parts per million, how much water is in their soil at any given time and whether that’s above or below ideal for a given crop considering variables such as location, soil type and time of year. You can’t manage what you don’t measure.

Make More of It

Usually this means desalinization (sometimes called ‘desalination,’ colloquially ‘desal’), which along with treating municipal and farm wastewater is the principal way to get fresh water that is not dependent on precipitation. So places such as deserts and islands, whose water needs exceeds their precipitation footprint, have been pioneers in this field, and where we see some interesting progress, such as integration of solar into the energy-intensive desal process.

In dry Pakistan, “worsening drought has led to over 80 percent of water resources in Pakistan’s southern Tharparker district becoming unfit for people to drink…that has led to plans by the Sindh provincial government to invest 5.4 billion Pakistani rupees ($53 million) in installing 750 solar-powered reverse osmosis water purification plants across the sprawling desert district, to help get safe drinking water to the region’s over 1.5 million people.”[10] Even oil states like Saudi Arabia are now making plans to use solar-powered desal “in order to save on energy costs, as well as be in tune with new environmental polices” and to “focus more on using renewable energy and even become an exporter of this clean form of energy as it has been doing with oil.”[11]

Islands aren’t always dry as deserts, but they have only so much surface area and thus limited ability to catch rainfall, even in the tropics. Grand Cayman based Consolidated Water Co. Ltd. (ticker: CWCO) has been making potable water out of seawater since 1973. This long experience and proving of concept may serve them well as more places clamor for water solutions. Currently, CWCO is expanding away from the Caribbean basin and is building a 100 million gallon per day desal plant in Rosarito, Mexico, which will slake thirst in Northern Baja, Mexico and San Diego County. San Diego may ultimately receive 20,000 acre-feet per year from the project, about “two-thirds of the district’s water supply.”[12] In addition to deep domain expertise, we’re also encouraged by CWCO’s commitment to making their operations as sustainable as possible. CWCO runs desal plants that are among the world’s most energy efficient and is increasingly embracing renewables, primarily solar, as means of powering water production.[13]

Transport It (Infrastructure) and Treat It

Moving water provides opportunities in advanced materials, energy capture and recapture (like the interesting work going on in Portland)[14], loss prevention, wastewater treatment and more. The most innovative example of water treatment has got to be the Gates Foundation-funded technology to make pure drinking water from human sewage. A bit early for investing, but definitely a big potential solution for urban areas. There’s even video of Bill Gates enjoying a glass of the stuff.[15]

Make Agriculture Smarter

In my view, the two most promising approaches to making more efficient use of freshwater in agriculture (apart from crop per drop comments above) are indoor farming, and both indoor and outdoor raising of halophytes (saltwater loving plants). For the latter, I refer you to the work of Dennis Bushnell, chief scientist at NASA’s Langley Research Center, who has been advocating adoption of halophyte farming for a decade now.[16] His work is early-stage, but to get an idea of the capabilities of halophytes to address at scale some of our key water concerns, I refer you to his 2008 paper where he breaks it all down.[17]

Indoor farming is a clear path forward. Consider: indoor farms can be very close to population centers, they’re naturally organic as pests aren’t a threat indoors, and most importantly, they are hugely more water efficient than outdoor farming. Presently, the world’s largest indoor farm is in an old Sony plant in Japan. It is “100 times more productive than outdoor fields In Japan, the world’s largest indoor farm produces 10,000 heads of lettuce each day with 99 percent less water than outdoor fields. All hail the farm of the future.”[18] Opportunities exists in many areas here: full- and targeted-spectrum LEDs, hydroponic equipment providers, specialized REITs and many more.

We Gotta Have Water

Opportunities abound to make tactical and strategic investments all along the various value chains that affect water. So even when the news is all about oil or employment or interest rates, it pays to keep an eye on what matters most to the underlying economy of people and their means of enduring. As The Guardian has pointed out, “analysts, traders and commentators have watched their fortunes ebb and flow, speculating on what happens next. But during all the action, you might have missed an even bigger story: water, not oil, could be the real commodity to watch in 2015.”[19] All macro indicators, from a global population going to nine billion to more meat consumption to urbanization to climate change to fracking, all impact the availability and quality of water. There are few long-arc trends that truly define our underlying realities the way water does. Creative application of careful financial analyses should result in good outcomes for the long-term investor.

Article by Garvin Jabusch, cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is comanager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club’s green economics blog, “Green Alpha’s Next Economy.”

Disclosure: Green Alpha ® Advisors is long CWCO as of the time of this writing.

Article Notes:

[1]  World Economic Forum, “Global Risks 2015,” January, 2015. http://www3.weforum.org/docs/WEF_Global_Risks_2015_Report.pdf

[2]  Albert Cho, “Political will is the biggest barrier to tackling global water risk,” The Guardian, January 30, 2015. http://www.theguardian.com/sustainable-business/2015/jan/30/political-will-barrier-global-water-risk?CMP=share_btn_tw

[3]  Poindexter, Gregory B., “Brazil’s drought brings water supply to near zero capacity at hydroelectric facilities,” Hydroworld, January 28, 2015. http://www.hydroworld.com/articles/2015/01/brazil-s-drought-brings-water-supply-to-near-zero-capacity-at-hydroelectric-facilities.html

[4] Bhalla, Nita, “World has not woken up to water crisis caused by climate change: IPCC head,” Reuters, February 3, 2015. http://www.reuters.com/article/2015/02/03/us-india-climatechange-water-idUSKBN0L71A420150203?irpc=932)

[5]   http://www.dni.gov/files/documents/Special%20Report_ICA%20Global%20Water%20Security.pdf

[6]  Ogg, Jon C., “Merrill Lynch 2015 Outlook for Stocks, Bonds, Energy, Income, Themes and More,” 24/7 Wall Street, January 13, 2015. http://247wallst.com/investing/2015/01/13/merrill-lynch-2015-outlook-for-stocks-bonds-energy-income-themes-and-more/

[7]  Earthworks, “For 1st Time Senate Votes on Halliburton Fracking Loophole in Safe Drinking Water Act,” February 28, 2015.

[8]  Baker, David R., State let oil companies taint drinkable water in Central Valley,” San Francisco Chronicle, February 1, 2015. http://www.sfgate.com/business/article/State-let-oil-companies-taint-drinkable-water-in-6054242.php

[9]  Valentine, Katie, “North Carolina To Lift Fracking Ban And Criminalize The Disclosure Of Fracking Chemicals,” Climate Progress, June 5, 2014.

[10]  Shaikh, Saleem and Tunio, Sughra, “Drought-hit Pakistan turns to solar water treatment,” Reuters, February 2, 2015. http://www.reuters.com/article/2015/02/02/us-pakistan-water-solar-idUSKBN0L60ED20150202

[11]  Picow, Maurice, “Saudi Arabia to Replace Oil with Sun Power for Desalination Plants,” Green Prophet, February 1, 2010. http://www.greenprophet.com/2010/02/saudi-arabia-desalination-solar/#sthash.5b9tR9sR.dpuf

[12]  Dibble, Sandra, “One desal plant, two countries?,” The San Diego Union-Tribune, August 24, 2014. http://www.utsandiego.com/news/2014/aug/24/rosarito-Mexico-desalination-plant-binational/

[13]  Not attributed, “CWCO touts Windsor and Blue Hills water plants as two of the most energy efficient in the world,” Bahama Islands Info, October 10, 2014.

[14]  Peters, Adele, “Portland’s New Pipes Harvest Power From Drinking Water,” Fast Company, January 23, 2015.  http://www.fastcoexist.com/3041300/portlands-new-pipes-harvest-power-from-drinking-water?utm

[15]  Poon, Linda, “Bill Gates Raises A Glass To (And Of) Water Made From Poop,” NPR News, January 10^th, 2015.

http://www.npr.org/blogs/goatsandsoda/2015/01/10/376182321/bill-gates-raises-a-glass-to-and-of-water-made-from-poop

[16]  Anderson, Mark, “Enter Halophytes,” Aeon, June 10, 2014.

[17]  Hendricks and Bushnell, “Halophytes Energy Feedstocks: Back to Our Roots,” The 12th International Symposium on Transport Phenomena and Dynamics of Rotating Machinery Honolulu, Hawaii, February 17–22, 2008. http://ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/20080001445.pdf

[18]  Macdonald, Fiona, “This indoor farm is 100 times more productive than outdoor fields,” Science Alert, January 13, 2015. http://www.sciencealert.com/this-indoor-farm-is-100-times-more-productive-than-an-outdoor-one

[19]  Albert Cho, “Political will is the biggest barrier to tackling global water risk,” The Guardian, January 30, 2015. http://www.theguardian.com/sustainable-business/2015/jan/30/political-will-barrier-global-water-risk?CMP=share_btn_tw

“Water promises to be to the 21st century what oil was to the 20th century.”  – Fortune Magazine

Water has emerged as the target of choice for the robber barons of globalization. As freshwater supplies dwindle, global investors are scrambling to own what’s left. The World Bank already values water privatization at $1 trillion and predicts that many of the wars of the 21^st century will be fought over water.

And the wars have already begun as citizens in South and Central America have fought back against water moguls whom they regard as bullies trampling democracy and basic human rights. When Bechtel, in 2000, privatized the Bolivian city of Cochabamba’s water and then raised rates high enough to threaten the lives of poor residents, the city erupted in deadly violence. The “Bolivian Water War” ejected Bechtel and toppled the city government. Control of Syrian waters by corporate agriculture during a prolonged drought helped trigger the current rebellion there. Today, Chile is effectively a neo-colonial vassal after the Pinochet dictatorship sold her rivers (along with her forests, minerals, and even roads, railroads and airports) to foreign syndicates. Chile’s leading human-rights lawyer recently told me, “Today, Chile has only the trappings of democracy, since we have no sovereignty over the resources of our nation.”

Could this happen in the United States? It already is. Chinese and European sovereign wealth funds and global private-equity firms are taking control of America’s waterways by purchasing the assets of industrial companies which once held hydropower licenses granted by the Federal Energy Regulatory Commission (FERC), which, ironically, was established to keep the nation’s waterways in public ownership and to assure that the waters are used for public not private benefit.

These machinations are reminiscent of the Gilded Age, when aluminum and steel companies dammed America’s rivers to power their smelters, routinely corrupting state legislatures and federal officials to win exclusive licenses to privatize public waterways. Teddy Roosevelt warned in 1915, “Keep your eye on the aluminum company that is trying to get control of your water powers. I have no objection to big business making money but I do not want it to make it at the expense of the public interest.”

Like most Americans of his era, Teddy Roosevelt regarded the control of our nation’s waterways as a central concern of democratic governance. Commonwealth assets like rivers and streams, he believed, should not be held by private interests for private gain.

In 1920, Congress heeded his warning and passed the Federal Water Power Act. Renamed the Federal Powers Act in 1935, this statute created the Federal Energy Regulatory Commission (FERC) to protect the public interest. The law recognized that a permit is a giving away of public treasure, and provided that rivers could only be dammed and water diverted to private users when it served a compelling public benefit.

In return for permits to build privately owned dams and divert waterways from traditional recreational, agricultural and drinking-water purposes, FERC required proof that these plants would bring jobs and prosperity to watershed communities. But, since 1935, FERC has never refused to renew or transfer any hydropower license. And, as the old permits expire, the enfeebled agency is allowing industrial companies to close their factories and effectively sell our rivers to foreign investors without any meaningful demonstration of a public benefit.

Here is an example of how it works: In the 1950s, FERC issued the Aluminum Company of America (Alcoa) a 50-year license to operate five hydroelectric dams on the Little Tennessee and Cheoah Rivers. The project’s primary purpose was to support Alcoa’s aluminum smelter and rolling-mill operations in Alcoa, Tennessee, which were the region’s principal sources of employment. To win the FERC license, Alcoa had to prove that its hydroelectric facilities would drive economic activity and bring prosperity. The license gave the company ample time to recover its capital investment. The license also limited free access to river water for citizens, towns and other users at a particular level, and required them to pay Alcoa to divert river water above that level for drinking, agriculture or industrial needs. FERC permittees effectively owned the river.

Alcoa applied to renew its license in February 2003, and on January 25, 2005, FERC awarded the company a new license without requiring any written guarantee that the company would maintain its manufacturing jobs, which were worth $400 million to the local economy. Subsequently, Alcoa shuttered the bulk of its facility and laid off 450 workers.

In 2010 Alcoa refurbished one of the dams with $12 million in federal subsidies. Then, in March 2012, the company suddenly shuttered the remainder of its Tennessee smelter plant and sold its newly minted license and its hydroelectric facilities for $600 million to Brookfield Asset Management. Brookfield now owns 25 percent of the Alcoa facilities. The remaining 75 percent is owned by global institutions and foreign governments, including China, whose investments Brookfield manages.

The new owners have no obligation to benefit the region’s economic interests. Private control of public water resources will inhibit economic growth, and the project will no longer drive industrial activity in Tennessee and North Carolina. As water becomes more scarce and electric rates rise, the new owner will charge local governments, farmers and water consumers higher rates. With no control over the bulk of river flow, localities will lose the flexibility to deal with extended water-shortages. The dams will simply enrich Brookfield and its global investors by producing wholesale power for sale to the highest bidder. The profits will leave the United States.

With $200 billion in assets, and more than 10 percent of FERC licenses in its portfolio, the company has acquired over 130 hydropower generating-stations and 30 river systems in the United States – more than any other FERC license holder. And Brookfield is only one of a spate of foreign-owned private equity firms racing to privatize America’s waterways for profit.

Alcoa appears to be re-deploying the same strategy it used on the Little Tennessee and Cheoah Rivers on North Carolina’s Yadkin River. In 2007, Alcoa closed its Yadkin smelter, fired its workers, and began selling electricity from the Yadkin’s four dams outside North Carolina, generating $30 million for the company last year alone. Despite fierce local opposition, Alcoa is applying to renew its Yadkin power license.

FERC will almost certainly give Alcoa kneejerk support to relicense its dams and then sell the river to the highest bidder. Since the passage of the 1935 Federal Power Act, FERC has never refused to renew or transfer any hydropower license.

FERC ’s practice, in contrast, has been to grant exclusive use of our water resources to private companies and foreign governments and corporations to generate hydroelectricity and seize de facto control of public waters for 30 to 50 years, without regard for the mandates for public benefit the Federal Power Act stipulates.

Waterkeeper Alliance (www.waterkeeper.org ) and its members fight every day around the globe for their local waterways and landscapes and embody the 1935 Federal Power Act’s original intention to “promote the development of safe, reliable and efficient energy infrastructure that serves the public interest.”

Article by Robert F. Kennedy, Jr. – President of Waterkeeper Alliance

Robert F. Kennedy, Jr.’s reputation as a resolute defender of the environment stems from a litany of successful legal actions. Mr. Kennedy was named one of Time magazine’s “Heroes for the Planet” for his success helping Riverkeeper lead the fight to restore the Hudson River. The group’s achievement helped spawn over 190 Waterkeeper organizations across the globe.

Mr. Kennedy serves as Senior Attorney for the Natural Resources Defense Council, Chief Prosecuting Attorney for the Hudson Riverkeeper and President of Waterkeeper Alliance. He is also a Clinical Professor and Supervising Attorney at Pace University School of Law’s Environmental Litigation Clinic and is co-host of Ring of Fire on Air America Radio. Earlier in his career he served as Assistant District Attorney in New York City.

He has worked on environmental issues across the Americas and has assisted several indigenous tribes in Latin America and Canada in successfully negotiating treaties protecting traditional homelands. He is credited with leading the fight to protect New York City’s water supply. The New York City watershed agreement, which he negotiated on behalf of environmentalists and New York City watershed consumers, is regarded as an international model in stakeholder consensus negotiations and sustainable development.

Among Mr. Kennedy’s published books are The New York Times’ bestseller Crimes Against Nature (2004), The Riverkeepers (1997), and Judge Frank M. Johnson, Jr: A Biography (1977) and two children’s books St Francis of Assisi (2005), American Heroes: Joshua Chamberlain and the American Civil War and Robert Smalls: The Boat Thief (2008). His articles have appeared in The New York Times, The Washington Post, Los Angeles Times, The Wall Street Journal, Newsweek, Rolling Stone, Atlantic Monthly, Esquire, The Nation, Outside Magazine, The Village Voice, and many other publications. His award winning articles have been included in anthologies of America’s Best Crime Writing, Best Political Writing and Best Science Writing.

Mr. Kennedy is a graduate of Harvard University. He studied at the London School of Economics and received his law degree from the University of Virginia Law School. Following graduation he attended Pace University School of Law, where he was awarded a Masters Degree in Environmental Law.

He is a licensed master falconer, and as often as possible he pursues a life-long enthusiasm for white-water paddling. He has organized and led several expeditions in Canada and Latin America, including first descents on three little known rivers in Peru, Colombia, and Venezuela.