Water risk, redefined: from structural theme to immediate reality
In many parts of the world, water resources are under severe strain from over-consumption, pollution and the effects of climate change. Problems with water supply do not just affect the emerging world – ageing infrastructure compromises reliable supply and contributes to pollution across the developed world.
In a new paper, "Water investing: An investment case for the vital resource", Impax Asset Management, a delegated manager of BNP Paribas Asset Management, details the challenges posed by increasing water scarcity and the widespread opportunities to invest in innovative companies across the water value chain.
To address the world’s water challenges, investment in the global water industry must increase significantly. The United Nations (UN) estimated in 2020 that an additional $260 billion would need to be spent annually on water-related infrastructure to realise its Sustainable Development Goals by 20301.
With water scarcity rising, exacerbated by pollution issues and the effects of climate change, stewardship of finite freshwater resources must improve.
Overcoming these challenges and meeting rising demand for water will require vast investment across the water industry value chain. This provides favourable currents for companies in the sector, from those operating upstream – building and managing physical water infrastructure – to those downstream, providing products and services to harness this critical resource.
- UN, 2023: Water – at the center of the climate crisis
The case for investing in water
Every human and every industry needs clean water. Yet it is increasingly the case that people and businesses struggle to get access to it, for numerous reasons:
- Water scarcity - a recent report by the Global Commission on the Economics of Water suggested that global demand for fresh water is likely to outstrip supply by 40% by 20302.
- Growing populations – higher demand for drinking water and for commercial needs like agriculture and industry.
- Climate change - For every 1°C rise in average global temperatures, the UN projects a 20% drop in renewable water resources3. Droughts are becoming more intense, and the amount of water stored on land in the forms of soil moisture, snow and ice has dropped sharply.
- Pollution - A tightening regulatory environment supports innovative approaches and technologies that address water quality issues throughout the water system, from water testing technologies to wastewater treatment.
- Urbanisation poses two major challenges – providing clean water and sanitation to more people in a concentrated area and greater flooding risks due to water run-off from impermeable surfaces like roads and roofs.
- Infrastructure - the World Bank has estimated that some $1 trillion a year needs to be invested this decade to improve the resilience and sustainability of the world’s water infrastructure4. This should create widespread investment opportunities, from companies that supply products integral to moving water around economies to those engaged in the development and construction of utility systems.
- New industries - The global semiconductor industry uses around 210 trillion litres of water annually, almost half of which is consumed in areas facing higher-than-average water scarcity, mainly in the five countries with the most semiconductor manufacturing plants: South Korea, Japan, Taiwan, China and the US5.
- Global Commission on the Economics of Water, March 2023: Turning the Tide - A Call to Collective Action
- Council on Foreign Relations, 2023: Water Stress: A Global Problem That’s Getting Worse
- World Bank, 2024: Closing the $7 Trillion Gap: Three Lessons on Financing Water Investments from World Water Week
- TNFD, February 2026
Tightening regulation
Water quality standards are becoming increasingly stringent. A keener focus on addressing biodiversity loss and related risks to businesses and society should support opportunities for products and services that can address the pressures on ecosystems.
Companies involved in the testing and treatment of water can play a vital role in helping to control pollution and reduce or prevent harm to water-borne life.
Investment opportunities across the water value chain
Long-term opportunities are being created across the entire water industry value chain:
Water utilities operating water treatment and supplying the related infrastructure, providing clean water wastewater and sewerage systems.
Water infrastructure companies making or supplying network equipment products like specialised pipes, pumps and valves that assist in the transmission of water and manage stormwater conditions. Other companies provide support in the design and construction of water infrastructure projects, from inter-regional transmission projects and groundwater assessments to flood defence planning.
In the field of water treatment, efficiency and testing, there are companies that design, make and install technologies or facilities for the treatment, separation and purification of water. Such firms tend to have relatively high margins, specialised technologies and strong pricing power.
New tech, new solutions
Data and software solutions can improve the sophistication of water system management and modelling. When combined with hardware, ‘smart irrigation’ techniques have been shown to vastly reduce water consumption in the water-intensive agricultural sector.
Innovative technologies that can enhance the reuse and recycling of water in industrial processes can help reduce costs and operational risks for industries central to modern economies.
There are also opportunities among innovative companies involved in the advanced detection, measurement and treatment of water contaminants.
And a boom, too, in water industry-related data and software. According to a report by Bluefield, US and Canadian water utilities’ total annual spending on digitalisation is forecast to more than double in the decade to 2033.
Long-term growth
Impax believes water represents a unique opportunity set for investors in listed equities. Addressing the challenges posed by climate change, ageing infrastructure and pollution issues, and meeting rising demand from growing populations and emerging water-intensive industries, look set to provide long-term growth drivers for businesses operating in the water sector.
Disclaimer
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
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