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Water, a Growing Business Risk
By Steve Schueth

Most residents of western countries take clean water for granted. When we turn on the tap, out comes the water. It’s cheap and reliable. Many of us don’t even know where our clean water comes from. And we assume there will always be more.

But a recent McKinsey & Co. report indicates that some 1.1 billion people don’t have access to clean water, and we know thousands perish daily for lack of it. The McKinsey report states that if water consumption continues without reform or meaningful regulation, within 20 years, as much as 40 percent of global demand for water will be unmet.

“Water is one of our most critical raw materials—even more important than oil, for there are no alternatives,” said Mindy Lubber, President of Ceres which collaborated with the Pacific Institute on a report focused on water scarcity and climate change. 

“Water sustains agriculture and, thus, our food chain. Vast quantities of water are used to make the silicon chips that help power our computers and cell phones. Electric power plants depend heavily on water, and account for a staggering 39 percent of freshwater withdrawals in the United States. It could be said our economy runs on water.” Agriculture alone accounts for about 70 percent of global water use.

Peter Brabeck-Letmathe, chairman of Nestlé, one of the world's largest food conglomerates, put it starkly in The Economist a year ago: "I am convinced that, under present conditions and with the way water is being managed, we will run out of water long before we run out of fuel."

The growing demand for water is becoming recognized as a growing business risk. Concerns about water supplies are seeping into the thinking of investors who own stock in companies that use large amounts of water. The Ceres/Pacific Institute report evaluated eight water-intensive sectors—technology, beverage, food, electric, power/energy, apparel, pharmaceuticals, forest products, and mining—and found that all face serious risks related to water dependence.

The Carbon Disclosure Project, an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world, is launching a water disclosure project similar to the greenhouse gas emissions disclosure effort it currently conducts.

As investors, this underpriced commodity, so valuable to life, also offers many investment opportunities. Better management of water and water saving technologies such as more efficient use of irrigation water, desalination of sea water, recycling of sewage water, and the reuse of captured water from rainfall or irrigation will offer important business and investment opportunities and may help stave off (yet another) looming crisis of global proportions.

Today most Americans could probably tell you the price of a gallon of gasoline on a day to day basis.

Do you know what the price of a gallon of water is today? What should it be?

Steve Schueth, President
steveschueth@firstaffirmative.com

Note: Mention of specific companies or securities in this blog should not be considered a recommendation to either buy or sell that security. For information regarding the suitability of any security for your investment portfolio please contact your financial advisor.

Posted: December 29, 2009