Investors must recognise the importance of investing in the desalination market in helping increase water security in all regions, according to Rob Martin, global head, investment strategy and research at Legal & General Investment Management (LGIM).
Figures from the National Institute of Health suggest around four billion people – or 66% of the global population – live in areas affected by severe water scarcity for at least one month of the year. Further, the Global Commission on the Economics of Water predicts that by 2030 global freshwater demand will outstrip supply by 40%, as 700 million people – of which 250 million are in Africa alone – could be displaced due to water scarcity.
The sustainable investment community is increasingly aware of water scarcity risk and, as a result, investments in desalination solutions – which turn abundant saltwater into usable fresh water – are gaining traction.
How has the desalination market evolved recently? Where are you finding opportunities?
The industry has grown quite rapidly. From 2010 to 2019, the amount of capacity has grown by 7% per year, according to Global Water Intelligence. We estimate this growth will accelerate up to around 10% a year, partly because of climate change and the need to reinforce water supply chains.
See also: Testing the water: Engagement is evolving
However, to fund this growth, a material capital requirement is needed. We’ve seen some figures that suggest around $35bn (£28bn) could be needed to fund just four years of new desalination capacity. That is a very plausible number when we turn it into a material capital requirement.
We’ll certainly see some opportunities to create assets in the developed markets in Europe, the US and Australasia. These opportunities will also appear in developing and emerging markets. The latter will suit investors with a slightly higher risk tolerance because those tend to cope with slightly more complexity around regulatory and political risks. Overall, there will be a spread of returns in this space.
Read the full article in PA Future’s June 2024 digital magazine.
