30 Apr 2024
By Adam Pinfold, Michael Rae and Ben Constable-Maxwell
Our nature and biodiversity insights series covers a range of topics that are central to solving the nature and biodiversity crisis, while highlighting the opportunities for investors to make positive contributions. In this article, Adam Pinfold, Michael Rae and Ben Constable-Maxwell consider the risks of our current unsustainable water use, alongside some of the potential solutions.
Over the last several hundred years, exponential population growth has increased demand for essential resources including food, energy and infrastructure. Sustaining our population and consumption patterns is contingent on water availability, and quality. Freshwater, a linchpin for economic development, fuels industries such as mining, energy, agriculture, manufacturing, and technology, while more than a third of the world’s food production depends upon rivers, through their role in sustaining fisheries, irrigated cropland, and flood recession agriculture1.
The composition of water demand is also changing radically. Industrial supply chains now account for approximately two-thirds of global water consumption, with sectors like food, energy, manufacturing, pharmaceuticals, mining, chemicals, and textiles responsible for 70% of freshwater usage and pollution2. Products such as semiconductors are vital for the clean energy transition, but semiconductor manufacturing requires substantial quantities of ultra-pure water to prevent electronic device contamination. A modern semiconductor fabrication plant typically consumes 2-4 million gallons of water daily3, or roughly the same amount as a local city of 50,000 people.
This shift in demand is concerning. By definition, the volume of water accessible on our planet is fixed, but the proportion which is fresh and usable for consumption or industrial processes has declined due to mismanagement and pollution. Fortunately, public awareness of the challenge is growing. Several of the United Nations Sustainable Development Goals (SDGs) aim to address water-related challenges directly. These are SDG 6: Clean water and sanitation, and SDG 14: Life below water*. These goals set ambitious targets to secure a sustainable future by transforming how we manage water resources and deliver water and sanitation services for all. Now more than ever, the onus is on companies to provide solutions to tackle the issue.
*While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.
Nowhere are the challenges clearer than in the consideration of groundwater. Groundwater has myriad societal and economic benefits, and crucially acts as a cushion for volatility in precipitation levels.
Groundwater is often extracted from aquifers – underground bodies of rock and/or sediment. Aquifers boast large storage capacity and are generally more protected from contamination than surface water. While circumstances differ for every aquifer, they can also be a cost-effective source of water, and at times be straightforward to access, with boreholes easily drilled in proximity to where water is needed.
Such benefits have led many urban civilisations to rely heavily on groundwater as their primary water source. Globally, 2.5 billion people depend solely on groundwater for their everyday water needs, while up to 50% of the population rely on it for drinking water4. However, population growth, rising wealth and ineffective regulation have led to unsustainably high levels of groundwater abstraction. This is depleting resources, and potentially jeopardising food security, basic water supply, climate resilience, and the environmental integrity of groundwater-dependent wetlands and water courses.
“Globally, 2.5 billion people depend solely on groundwater for their everyday water needs, while up to 50% of the population rely on it for drinking water.”
It is worth noting that aquifers naturally undergo water level fluctuations, induced by prolonged droughts or high precipitation. During droughts, rivers and wetlands will typically receive water inflows from aquifer storage, causing aquifer water levels to decline. Conversely, precipitation events allow aquifers to ‘recharge’. However, problems arise when we introduce the variable of human water extraction, which disrupts this delicate balance of natural fluctuations, leading to declining water levels in aquifers. Unchecked, this can result in the aquifer dewatering – reducing borehole yields and increasing pumping costs, therefore necessitating the abandonment of the aquifer.
These challenges extend far beyond water itself. The interconnectivity between water, nature, and climate change is becoming ever clearer. The IPCC has highlighted the extensive impacts of climate change on the hydrological cycle, leading to altered precipitation patterns and exacerbating water scarcity issues in regions already facing challenges.
Climate change effects also extend to marine life. In 2021, more than 1 billion marine animals were believed to have perished along Canada’s Pacific Coast due to soaring temperatures5. Such occurrences underscore the urgent need to address climate change impacts on water systems. Our freshwaters harbour an incredible diversity of 140,000 specialist freshwater species, but a third of these freshwater species are now at risk of extinction, as a direct result of our water mismanagement and pollution6.
The other side of the coin is the increased requirement for managing wastewater. Currently, 48% of wastewater is released untreated into the environment7, but urbanisation and economic development only stand to increase such activity. The release of untreated wastewater is generally more prevalent in low-income countries, but water pollution is not limited to such regions. Both rich and poor countries grapple with high levels of water pollution, and rather than decreasing with improving economic prosperity, the range of pollutants actually tends to increase.
“Both rich and poor countries grapple with high levels of water pollution, and rather than decreasing with improving economic prosperity, the range of pollutants actually tends to increase.”
One notable source of water pollution is agriculture, which releases agrochemicals, organic matter, drug residues, sediments, and saline drainage into water bodies. Crops and livestock, especially with increases in pesticides and fertilisers, significantly contribute to water pollution. Animal manure, which is rich in pathogens, ammonia, and phosphate, possesses a high biological oxygen demand. As the populations of our livestock grow to meet the demands of our expanding population, so too does the yield of associated manure, as well as increases in vaccines, antibiotics and hormones.
These agricultural pollutants reach our water bodies through percolation (water seeping through porous surfaces), surface runoff, and soil erosion. Runoff from chemical fertilisers containing nitrate and phosphorus is one of the more significant anthropogenic causes of water pollution, as it results in eutrophication. This process causes algal blooms, and can ultimately reduce the water quality, deplete oxygen levels, and harm endemic life.
Another source of water pollution is per- and polyfluoroalkyl substances (PFAS), a group of synthetic chemicals with detrimental impacts on the environment and our health. Such chemicals are all around us – they are used in water-repellent clothing, non-stick cookware, and greaseproof food packaging, to name but a few. PFAS have a lifespan of up to several thousand years, earning them the nickname ‘forever pollutants’, and have been linked to health problems such as cancer and reproductive harm. Most PFAS health scandals in the US and Europe have related to contaminated drinking water supplies. There are, however, companies making efforts to remedy such issues.
Case study: American Waterworks
Within M&G’s public equity impact strategies, one investee company providing solutions to the PFAS challenge is American Waterworks, a large, regulated water and wastewater utility company in the United States. American Waterworks specialises in ensuring high water quality and investigating emerging contaminants, including PFAS. The company’s solutions include the rapid and reliable installation of temporary Granular Activated Carbon (GAC) systems, which help to filter PFAS from water. Knowledge of this space is still growing, but the company has a cross-functional team focused on the scientific and regulatory framework surrounding PFAS detection, alongside emerging removal technologies.
Source: https://www.amwater.com/resources/pdf/american-water-PFAS.pdf
As has been well documented, the sheer scale of global plastic use poses the daunting challenge of creating responsible disposal practices. Approximately 8-10 million metric tons of plastic waste seeps into the ocean annually8, resulting in entanglement, smothering, ingestion of plastic fragments, as well as exposure to plastic-associated chemicals for our aquatic animals.
Animals such as turtles or seals can become entangled in macro plastics such as six-pack rings, reducing mobility or inducing strangulation. For sea turtles, floating macro plastics such as plastic bags, are particularly damaging, as their feeding strategy is contingent on selecting structures analogous to jellyfish.
Microplastics possess a similar level of danger, as they can be ingested by a wide variety of marine life, and transfer through trophic levels from smaller organisms to larger organisms. Exposure to microplastics also increases the likelihood of disease in corals, and through interactions with carbonate reefs and primary producers, microplastics hinder the carbon sequestration ability of marine ecosystems, compromising some of our natural carbon sinks.
Case study: Tetra Tech
Tetra Tech, a watchlist company within M&G’s public equity impact strategies, provides a variety of water management solutions, with the aim of delivering a ‘resilient water future’. Tetra Tech is currently conducting a multi-year assessment of the risks of microplastics in a specific region of the US. As part of efforts to understand microplastic ‘sinks’ (accumulations of deteriorated plastic debris), the company is studying the role of submerged aquatic vegetation beds in trapping microplastics in the Anacostia and Potomac Rivers near Washington DC, and how these habitats may be a source of microplastics entering the coastal aquatic community food chain. Results from initial studies have been presented to scientific societies, to offer a better understanding of ecological implications of microplastics, and develop policies to reduce plastic pollution.
Source: https://www.tetratech.com/projects/evaluating-the-risk-of-microplastics-in-coastal-waters
The information provided should not be considered a recommendation to purchase or sell any particular security.
1 WWF, ‘High cost of cheap water’, (panda.org), 2023.
2 UN Water, ‘The United Nations World Water Development Report 2021: Valuing Water’, (unwater.org), 2021.
3 Sustainalytics, ‘Waste Not, Want Not – Water Use in the Semiconductor Industry’, (sustainablytics.com), 2017.
4 The Groundwater Project, ‘The importance of groundwater’, (gw-project.org), 2024.
5 Scientific American, ‘Pacific Northwest Heat Wave Killed More Than One Billion Sea Creatures’, (scientificamerican.com), 2021.
6 WWF, ‘Freshwater biodiversity’, (panda.org), 2024.
7 United Nations University Institute for Water, Environment and Health, ‘Half of global wastewater treated, rates in developing countries still lagging’, (inweh.unu.edu), 2024.
8 Unesco Ocean Literacy Portal, ‘Ocean plastic pollution an overview: data and statistics’, (unesco.org), 2022.
By Adam Pinfold, Michael Rae and Ben Constable-Maxwell
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