Tapping into water as an investment mega theme

Water is something many of us take for granted day to day, yet it’s essential to life and vital for businesses to function. It underpins almost every part of the modern economy.

This year’s heatwaves – including the hottest June day ever recorded for the UK – are a stark reminder of the increasing pressure on water networks and availability.

At the same time, a growing population and rising industrial use are already challenging the planet’s limited freshwater resources.

More frequent and severe weather events are only intensifying this challenge, making water scarcity an increasingly urgent issue.

There is a growing opportunity for investors to back water-related companies that are helping address the risk of a global water crisis.

The extent of the global water challenge and what governments are doing

Fresh water is scarcer than you might think. It makes up a very small fraction of all water on the planet. While around 70% of the globe is covered by water, only 2.5% of it is fresh, with the rest being salt water.

Even then, just 1% of fresh water is easily accessible and ready to drink, with much of it trapped in glaciers and ice caps. That is not a lot to support the planet’s 8.3 billion people.

Meanwhile, there is growing demand from nearly every industry, including agriculture, food production, and even semiconductor manufacturing.

Semiconductor manufacturers need pure water to make chips. Restaurants and hospitals can’t operate without clean water. Water is used to cool data centres. It’s estimated that a typical semiconductor plant guzzles between two and four million gallons of water a day.

Water is a key input to many industries, and this makes it just as important as other supply-chain links are.

Global demand has more than doubled since 1960 and continues to rise. But the earth’s small supply of fresh water is very unevenly distributed across the planet. Two thirds of the world’s population suffer severe shortages for at least one month of the year already.

By 2030, demand for fresh water will outstrip supply by 40%, the United Nations has warned. This makes water, or the lack of it, an operational risk for many businesses, just like the possibility of a cyberattack.

Climate change and underinvestment in water infrastructure are compounding the problem. An increase in extreme weather events – storms, floods, and droughts – is exacerbating many forms of water pollution and ageing pipes are struggling to cope.

By 2050, an extra 4,000 mega litres of water – enough to fill 1,600 Olympic swimming pools – will be needed every day to meet demand and rising temperatures will mean a fivefold increase in the risk of drought. It’s no wonder experts warn of a rapidly accelerating global water crisis.

Rising pressure on global freshwater resources has brought the issue higher up the political agenda in recent years, prompting increased investment in water infrastructure alongside regulatory and policy initiatives across many countries.

The European Investment Bank committed to investing around €15bn into water-infrastructure projects for 2025-2027 and around €5bn was invested for 2025 alone.

In the US, the Bipartisan Infrastructure Law earmarked more than $50bn to improve drinking water, wastewater, and storm infrastructure. It remains the biggest federal government investment in water ever.

Companies and funds investing in solutions

Alongside policy developments, there are clean-water solutions coming from the private sector. According to BCC Research, the global water and wastewater treatment technologies market will reach $516bn by 2028, expanding from $303bn in 2023 at a compound annual growth rate of 11.2%.

These companies are turning the tide with innovative technologies that detect and repair leaks, test and improve the quality of water, and better manage this vital resource.

One of the clearest ways companies are improving the water sector is by increasing water efficiency. This includes measures such as recycling and reusing water in manufacturing processes, as well as adopting more efficient irrigation techniques in agriculture.

Industries like food and beverage and semiconductors are particularly significant here, given their heavy water usage and strong incentive to reduce consumption.

Others are more actively investing in water treatment and purification. For example, Xylem, a major pure-play water-technology company, offers a broad range of products and services spanning the entire water cycle.

It is positioned as a one-stop shop for utilities, industrial manufacturers and building operators across more than 150 countries, addressing needs that range from pumps and valves to sensors and analytics.

A major focus for the business is the development of water technologies that use less energy, reduce lifecycle costs, and support sustainability efforts, including digital tools that combine smart and connected technologies.

By 2030, it aims to help its customers reduce global water demand by at least 2 billion cubic meters, making it a popular holding in water-related funds.

In the smart water management space, companies are deploying sensors to detect leaks and monitor usage, alongside smart meters for real-time tracking, Advanced data analytics are also used to optimise efficiency.

Halma is a good example. The group of life-saving technology companies includes a number of water-related and environmental businesses focused on different aspects of the global water challenge.

These range from sensors that help detect stormwater overflows and leaks to technologies such as remote-controlled robots or pipe linings cured with ultraviolet (UV) LED. Another business provides UV disinfection systems to remove contaminants from water without the use of chemicals.

Halma also has a longstanding capability in water testing through Palintest, a business acquired in 1983. Its technology enables more than 250 million water-quality tests a year, supporting a wide range of customers, including some in international relief and development.

There are also ETFs available for investors seeking broad exposure to water-related stocks, particularly where single-stock exposure may not align with their risk appetite.

One example is Legal & General’s clean water ETF, which aims to track the performance of the Solactive Clean Water Index. This index captures a basket of companies actively engaged in the global clean water industry, spanning technological, digital, engineering and utility services.

A long-term theme with growing relevance

Water may not be the most glamorous industry, but the growing pressures on this vital resource mean water-related investments are likely to play an increasingly important role in portfolios of the future.

While uncertainty remains around listed UK water companies that supply households and businesses amid a shifting political and regulatory landscape, we believe businesses that support water conservation and efficiency will continue to see strong global demand.

These are just a few examples of the opportunities within the space. As technology evolves and the challenge intensifies, water is a theme we expect to remain firmly on the investment agenda for years to come.

From infrastructure and utilities to technology and efficiency solutions, there are many ways to gain exposure to the water megatrend.