Investors are obsessed with value — except when it comes to water

8 min readMar 22, 2021


By Stuart Orr, WWF Global Freshwater Lead & Brian Richter, President of Sustainable Waters

Marble Canyon on the Colorado River © Donald Giannatti on Unsplash

In early January the New York Times published an article heralding growing investor interest in acquiring rights to water in the Western US. The article distorted and mischaracterized many aspects of the legal systems that govern the use and trading of water in this region, but it garnered a great deal of attention because it preyed upon a widespread anxiety that wealthy individuals or corporations will somehow gain control of water, hoard it, and sell it to us at great profit when water becomes frighteningly scarce — as sensationalized in the James Bond movie “Quantum of Solace.”

While speculation in water rights by private finance does raise many questions, the often outraged reaction clouds a wider and more important discussion that we need to have. In a world rife with water scarcity, pollution, and flooding, which will only worsen under climate change, we no longer have the luxury of simply maintaining the status quo: we have to start thinking about how to innovate and challenge to make things better. In particular, we need a new investment paradigm — one that overcomes the existing impediments to engaging private capital to advance positive changes in the water sector.

Investors are still fooled by the paradox of value

Adam Smith, commonly regarded as the ‘father of economics,’ recognized an economic paradox hundreds of years ago: diamonds command a much higher market price than water even though they are far less valuable to economies — and, indeed, to our very survival. Smith’s paradox of value remains unresolved to this day — our economic systems are still incapable of expressing water’s true worth in an appropriate manner. Benjamin Franklin came closer when he suggested that “We know the worth of water when the well runs dry.” But Franklin’s broadened appreciation of water’s value was clearly utilitarian — we have only recently begun to more fully appreciate the immense value of water to recreation or beauty, or even more recently the role of fresh water in ecosystem processes and species survival. The relatively new science of ecosystem service valuation tries to capture these broader values but its lack of widespread adoption in economic decision-making reflects what we all know: water is worth more than money.

Investing in water is not new, of course. Some of the best performing stocks and mutual funds are specifically linked to the water sector. The top 5 Water ETF’s show impressive track records and trends, and are a mix of stocks across water utilities and infrastructure companies, water, sewer and pipeline construction, water purification, water equipment and materials companies. But investment and trading in actual water — the real stuff — has remained an elusive market for investors and in many places is not possible for many good reasons.

Water is worth much more than money © Brent Stirton / Getty Images / WWF-UK

Water is not just a commodity. It’s a human right and a social good, a critical environmental service, and the essential input for agriculture and industry, as well as a generator of energy and carrier of our wastes. Trading off these competing roles and needs, and aggregating values that we could attach to all of them is nearly impossible. Attaining a suitable price that everyone would accept and then allocating this to the highest bidder has obvious issues in terms of access and equity, let alone politics. For this reason, there is no nation on earth, not one, that balances supply and demand for water through prices decided by the market.

We also have a serious problem in that too many of us take water’s availability and quality for granted. The vast majority of companies — including those with immense water footprints in their operations and supply chains — have little or no sense of the very real risks of water scarcity, pollution, or flooding to their business interests. In the absence of clear ‘market signals’ — that is, a price that appropriately reflects these water risks — too many shareholders remain clueless.

It’s not as if the warning signs aren’t flashing red. Just the limited number of companies reporting through the international disclosure organization CDP estimate they could lose US$301 billion in business value due to water risk. Meanwhile, the World Economic Forum has ranked water crises in the top five risks by impact for the past decade. These risks are expected to worsen as the world overheats because the impacts of climate change will “most immediately and acutely be felt through water” — with 90% of natural disasters being water related. The WWF Water Risk Filter’s scenarios estimate that 51% of the world’s population and 46% of global GDP will be situated in high-risk river basins by 2050.

Estimates of global GDP situated in high-risk river basins using WWF Water Risk Filter’s scenarios

But we don’t need to look decades into the future for water risk to manifest, as there are abundant examples already. The ground beneath the Indonesian capital of Jakarta has subsided more than four meters since 1970 due to over-pumping of groundwater, exposing the city to much greater flooding risk and ocean surges. The water taps of homes and businesses in Sao Paolo were shut off during 2013–2015 due to water shortages; other cities including Cape Town, Chennai, and Istanbul have faced similar calamity. A 2015 tailings-dam disaster that polluted over 200 km of river in Brazil cost mining companies Vale and BHP Billiton billions in fines, lawsuits and lost share value — let alone countless lives, livelihoods, and productive river and marine ecosystems.

But still no mainstream bank — and very few large investors — are asking companies to assess and disclose their exposure to water risks. Similarly, urban water utilities are uniformly reluctant to reveal known risks in their ability to provide clean, reliable water supplies to their customers, even when facing regulatory curtailments in their access to water, because implementing water conservation programmes in their cities might signal an uncertain water supply.

Every day we hear more pledges from investors about their climate actions but those commitments focus exclusively on emission reductions and carbon offsets, while completely overlooking the fact that climate change is drowning or drying their increasingly stranded assets. Why are there so few discussions in the financial sector about building resilience and financial security by tackling water risks? Why are investors not requiring clients to assess and respond to water risk and seek opportunities to thereby differentiate themselves in the marketplace?

A better water future for all is possible © Staffan Widstrand / WWF

Building a Better Water Future

Solutions do exist. Here are three approaches that could transform private investment in the water sector in service of building vibrant, resilient communities and restoring ecosystems.

Regulatory Incentives: Regulatory constraints on private investment are almost exclusively focused on preventing harm. It’s time to use regulations to generate beneficial impact — alongside returns. For instance, regulators of water rights trades such as those discussed in the New York Times article could — in addition to ensuring the avoidance of harm — require that transactions must also improve existing conditions, such as by asking questions like, (1) will this trade restore water flows that benefit aquatic habitats? (2) will this trade benefit other water users by adding water back into the overall hydrologic system? And (3) will this trade benefit the local community and economy?

Disclosing Water Risks: If companies and utilities were required to fully disclose water-related risks, we could expect much greater investment in actions that lower that risk. Investors could ask their clients three simple questions that would significantly shift behaviour and potentially catalyse new investment opportunities: (1) do you have a publicly available assessment of water risk and opportunities for your entire company? (2) do you have a strategy to address water risk and explore water opportunities and (3) Have you conducted scenarios assessment given possible climate and socio-economic changes in coming decades?

Many governments now require that drinking water utilities provide regular water quality reports to their customers that reveal how many times and to what degree their water supplies failed to meet water quality standards. Many governments also require that flood risks must be disclosed when a property is sold to a new owner. These types of disclosures are not uniformly required globally but should be. Additionally, water providers are rarely required to reveal water shortage risks, but disclosure of these risks should also be made mandatory.

Bankable Finance: Investors, banks and private companies are investing heavily in water-related infrastructure and they are hungry to invest in more sustainable water projects, but there is no pipeline of viable projects. The Dutch Fund for Climate and Development (DFCD) is working to fill this gap by generating a pipeline of investable or ‘Bankable Projects’, which are part of broader landscape finance plans that seek to develop more climate resilient and sustainable societies, economies and ecosystems. Immense potential exists to tap private capital for much-needed public improvements in water, whether it is for infrastructure development or rehabilitation, watershed restoration to reduce flooding or filter water supplies, water conservation to lower water use in stressed basins, or restoration of environmental flows in depleted rivers.

With water stress increasing, it is essential to transform our current relationship with water, from one where we only recognise the true value of water and freshwater ecosystems once they are lost to one based on an understanding of the opportunities to build a more resilient future through innovation and finance — one that will also reduce risk and create value for companies and investors.

Water speculation and rent-seeking for water rights will continue, but those are red herrings in the grand scheme of things. Wall Street — and the world’s investors — will generate far more value once they grasp how to resolve Smith’s paradox. Clean, safe, reliable water and healthy freshwater ecosystems are far more valuable than diamonds. And unlike diamonds, they are not forever. Although they could be if investors start redirecting their financial flows into sustainable water projects.

© Kelsey Hartman / WWF-Greater Mekong

Brian Richter is president of Sustainable Waters, where he advises public and private entities about water scarcity risks. Brian previously led The Nature Conservancy’s global water program for two decades. He also teaches water sustainability at the University of Virginia. His latest book, Chasing Water: A Guide for Moving from Scarcity to Sustainability” has been published in five languages.




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