Water is becoming an increasingly scarce resource. Due to the constantly growing population, urbanisation processes and changes in consumption patterns and lifestyles, the demand for this raw material is constantly growing and its sources are depleting.
For these reasons, investing in water is referred to as a business opportunity. It guarantees a long-term rate of return and a stable profit, regardless of the economic situation on the financial markets. However, this is not a standard investment solution and requires in-depth analysis. Therefore, it is worth taking advantage of professional financial companies, which offer investment advice.
Profitability and risk of investing in water
However, it is unlikely that water will be fully recognised as a commodity to which futures contracts will be issued, although the financial lobby of Wall Street is seeking to do so. The main barrier is the ethical issue of speculative transactions, which are aimed at achieving a higher return as a result of changes in the value of the underlying. A strong opposition to this type of practice has also been expressed by a global social movement challenging the concept of water commodification.
The question then arises of what to invest in? We have several possibilities. These are the most popular:
companies from the water infrastructure sector – 748 million people worldwide still have no access to drinking water, which gives wide opportunities for organic growth for companies involved in the development of water and sewage networks.
Local authorities, which usually own water systems, tend to cooperate with private water companies when seeking new sources of financing. Thanks to this, companies dealing with water infrastructure are able to offer their investors impressive profits, reaching several percent annually.
Financial analyses, which show a growing trend in water tariffs, are an additional incentive. Water is not substitutable, so the demand for water continues to grow with the growing population, even in spite of rising prices. Thanks to this, companies from the water sector can count on higher profits.
However, the optimism of the financial markets should mean that the activities of private companies in the sector are subject to strict regulations. Not all ways of making a profit will also be socially acceptable, which is important for legitimising the presence of private companies in the water sector, especially when we consider anti-privatisation campaigns, which have already often led to private investors withdrawing from the implementation of water infrastructure projects.
It is also worth remembering that a part of the profits achieved by the company cannot be paid out to shareholders in the form of dividends. It is intended for the modernization of outdated water and sewage systems.
Water funds – Global water companies usually require a substantial share buyout, which small investors cannot afford due to limited financial possibilities. However, they have the possibility to invest in water funds by combining their capital with other investors, which allows them to share in the profits of large water corporations, especially those dealing with bottled water. Although the funds offer a relatively low rate of return, they are long-term profits. Therefore, they are mainly dedicated to investors looking for stable and safe revenues. An example of such a fund is PowerShares Water Resources.
companies of modern technologies – search for effective methods of desalination of water or its extraction from the air. However, it may take some time for these methods to become technologically feasible and profitable. If this happens, however, it will be above-average returns.
In the future, investing in water can only gain in popularity. Climate change and an ever-increasing population are the main determinants of how valuable a resource will be for us. Therefore, it is worth getting acquainted with investment opportunities already today.