Today, agriculture accounts for over 72% of global water use, industrial processes consume 15%, and municipal accounts for 13%. This increasing demand for water puts immense pressure on already stressed water systems.

What are the driving factors behind water scarcity?

The main drivers behind global water withdrawals are population growth and economic development. While population growth affects all three sources of water withdrawal—agriculture, industry, and municipalities; economic development is closely linked to industrial and municipal water consumption. In addition, agricultural and industrial use of water results in an ongoing decline in water quality that further diminishes the availability of safe, usable water.

The importance of water in agriculture

As the world’s population grows, the demand for food, feed and biofuels increases, putting additional pressure on already strained water resources and meeting future demands. According to the Food and Agriculture Organization of the United Nations (FAO), the agricultural sector will need to produce almost 50% more food, feed, and biofuel by 2050 to meet projected demand. Consequently, adopting innovative and efficient water management methods is essential.

As economies develop and cities grow, agriculture’s share of global water use is expected to decline relative to other sectors. However, with 72% of freshwater withdrawals, agriculture will remain the dominant user of water worldwide. Of this, 80% is used for irrigation, which has seen a global increase of 22% since 2000, with significant growth in Africa, Asia and South America. 

Water’s impact on the industrial sector

Industries tend to prioritise maximising production and minimising costs, and due to the relatively low economic value of water, minimising water consumption is often overlooked. Water is deeply ingrained in industrial processes, including applications such as fabrication, processing, washing, diluting, cooling, cleaning, and transporting products like food, beverages, and cosmetics.

Although the industrial sector only accounts for 15% of global freshwater withdrawals, it is the primary driver of water usage in countries like Canada, France, and Germany. Therefore, many companies in developed economies have set themselves water targets considering operational risks that could occur due to low water resources. 

The growth of municipal water use

Every day, we rely on water for drinking, food preparation, and hygiene, making clean water crucial for survival. With the global population expected to reach 9.7 billion by 2050, access to clean water has become a pressing issue, as its absence leads to dehydration and the spread of disease.

While municipal water use accounts for only 13% of global freshwater withdrawals, this sector has experienced the most rapid growth in water usage, driven by the rising number of people, homes, and growing cities that demand more water than ever. While China, India and the United States have the highest domestic water demands, there is also a clear link between prosperity and per-capita water consumption. 

According to the Organisation for Economic Cooperation and Development, total water demand is projected to increase by 55% between 2000 and 2050. A large part of this demand is expected to come from municipal use (+130%).

Water management: solutions for too much and too little

With more and more people being exposed to water scarcity, innovative solutions are emerging to address water scarcity. 

Key innovations include:

Digital water and smart infrastructure
Digital water solutions include sensors, satellites, and artificial intelligence to improve visibility into operations and enable data-driven decisions. 

Advanced water treatment and recycling
Water treatment is used to improve water quality by reducing the concentration of contaminants. 

Desalination
Desalination is the process of removing salt from seawater to produce fresh water. This is crucial, as only 3% of the water on Earth is freshwater, while the remaining 97% is seawater.

While water scarcity is a pressing global issue, the excess of water caused by extreme weather events also requires attention. Existing city infrastructures are not built to sustain these extreme weather conditions, so innovative, proactive solutions have emerged under the pressure of these extreme situations:

Sponge cities
’Sponge cities’ is a new innovative concept for dealing with floods. Excess water is absorbed and released later for cooling purposes, minimising the risk of flooding. Copenhagen (Denmark) is a successful example of this, implementing a plan to become more resilient to heavy rainfall after a strong flood in 2011. This included breaking up sealed surfaces and creating green spaces and underground reservoirs to collect and store rainwater.

Environmental monitoring
Environmental monitoring gathers and analyses geospatial data to assess the current state of the environment and its future outlook. 

What does this mean for investors?

Given the essential role of water in human life, the challenges of water scarcity and extreme weather events are crucial factors for investors to consider. So, how should investors approach this issue?

We see several solutions that should help handle water-related challenges. Digital water for example can be applied in all three segments. Specific technologies within digital water would be precision irrigation, smart infrastructure, smart metering and environmental monitoring, which all show great potential. Also, advanced water treatment, recycling and desalination should play a crucial role in addressing global water concerns As a result, companies providing innovative solutions in these areas are well-positioned for long-term growth. Overall, we see the most significant structural growth in water infrastructure and treatment.