USAID, the U.S. Agency for International Development, provides humanitarian assistance around the globe. Established by then-President Kennedy in 1961 as a way to support American security, USAID’s goals include the promotion of resilient democracies and eradication of extreme poverty. This includes “WASH” a program expanding access to safe water supplies, sanitation and hygiene.

The dismantling of USAID will have a profound negative impact on the availability of safe water in much of the developing world to the determent of US interests and security. “Water insecurity makes people desperate, and desperate people do desperate things,” said John Oldfield, a 20-plus year veteran of international WASH policy. 

Imagine instead the positive impacts of an unlimited supply of safe water would mean for the world. The waning of US governmental support provides an opportunity for sustainably-focused investors to support the ongoing major advancements in desalination—turning sea water into clean, drinkable water.

Making Reverse Osmosis Affordable

The gold standard for desalination is reverse osmosis, a process that can produce one gallon of fresh water from every two gallons of saltwater or brackish groundwater (water that is rich in minerals and has about half the salt of seawater).

The downside of desalination is that pumping dirty water through a membrane requires lots of electricity. It also produces large amounts of a waste product called brine.

But breakthroughs in solar panels, wind turbines, and energy from waves are making the desalination process more economically feasible.

“The spectacular lowering in price of photovoltaic panels in the last decade has contributed to a desalination revolution,” says the nonprofit Future Investment Initiative Institute (FII) in its 2024 Impact Report.

A solar farm the size of four football fields can supply fresh water to a city of 100,000 people and could cost as little as $10 million to build.

“This opens up the prospect of bringing substantial, affordable and net-zero water supplies to the world’s coastal deserts,” says FII.

Water treatment companies are also finding new ways to use waste byproducts profitably, such as selling brine to commercial fish farms in local areas.

Projects Currently in Place

Solar energy is already being used by desalination facilities in the U.S. and abroad.

• California has 12 desalination plants built by Poseidon Water. That includes a $1 billion reverse osmosis plant in Carlsbad that produces 190,000 cubic meters of clean water per day, supplying San Diego County with up to 10% of its freshwater needs.
• A solar-powered desalination plant in Likoni, Kenya, where fresh water is scarce, can produce enough drinking water for up to 35,000 people every day.
• A reverse osmosis plant in Al Khafji, Saudi Arabia, powered entirely by solar energy, produces 90,000 cubic meters of water a day. That’s enough water to fill 36 Olympic-size swimming pools.
• In Brazil, almost 1,000 reverse osmosis plants are providing 3.2 million liters of fresh water a day for drinking, washing and irrigation, serving half a million people. The source is brackish groundwater

Emerging Investment Opportunities

If you want to get ahead of the renewable investing curve, the pipeline of companies leading this revolution could be one place to start.

The market is highly fragmented, with lots of specialists contributing to various niches in the desalination process. Mutual funds and ETFs offer broader exposure, but keep in mind that these funds also invest in companies involved in other areas of the water supply or conservation business, not entirely desalination holdings.

The ETFs and companies mentioned below are not investment recommendations. But they will give you a starting point if you’re interested in branching out and learning more on your own.

The oldest and largest water-related ETF in the U.S. is the Invesco Water Resources ETF (PHO). Launched in 2005, it has assets of roughly $2.3 billion. Its top five holdings are Roper Technologies, Ferguson Enterprises, Veralto Corp., Xylem Inc., and Pentair PLC.

Other ETFs include:

• Fidelity’s Water Sustainability Fund (FLOWX)
• Calvert Global Water Fund (CFWAX)
• First Trust Water ETF (FIW)
• Ecofin Global Water ETF (EBLU).

The top 10 publicly traded desalination companies are:

1. Ecolab (NYSE: ECL)
2. Consolidated Water Co. Ltd. (Nasdaq: CWCO)
3. American Water Works Company Inc. (NYSE: AWK)
4. General Electric Company (NYSE: GE)
5. Veolia Environment (OTC: VEOVY)
6. Suez Environment (OTC: SZEVF)
7. Acciona SA (OTC: ACXIF)
8. Energy Recovery, Inc. (Nasdaq: ERII)
9. California Water Service Group (NYSE: CWT)
10. Edison International (NYSE: EIX) Source: InvestmentU.com

Is Sustainable Water in Your Portfolio?

Why has clean water production gained so little attention from sustainability focused investors?

“Despite the centrality of water to the environment, as well as to communities and society broadly, water has simply been overlooked in ESG goal-setting processes, analyses, or frameworks,” says a 2023 report from the Aspen-Nichols Water Forum.

The main reason it is so often overlooked could be the fact that the U.S. hasn’t experienced the damaging effects of persistently dry weather since 1988, when a severe drought caused economic damages estimated at between $80 billion and $120 billion.

But the potential financial risk presented by a sustained shortage of clean water is enormous.

Just think of the chain reaction a nationwide drought could cause, starting with farmers and working its way through food distribution companies, restaurants, and local tourism. Financial firms that underwrite insurance policies for agricultural producers would be hit hard.

Hopefully, the U.S. will never endure the type of drought experienced in 1988 or the Dust Bowl of the 1930s. But all too often, that’s what it takes to get people’s attention.

For more insights and guidance on navigating the evolving landscape of clean water, sustainable investing, climate change and other related issues, stay tuned to our blog for future updates and expert analyses.

And help us build a more sustainable and prosperous world through responsible investment practices by becoming a member of the Advance ESG community. It’s free to join and there are no future financial obligations. Together, we can make a difference in safeguarding our planet for future generations.