How to Invest in Water
Sufficient and reliable clean water is essential to life - but we’re running out of it.
Well, not exactly. The amount of water on Earth is finite, but as the population increases, the amount of freshwater per person decreases. To make matters worse, supply is being negatively affected by climate change, pollution, inefficiencies due to aging infrastructure, and mismanagement. The United Nations (UN) estimates that the demand for freshwater will exceed supply by 40% by 2030. Lack of access to clean water and sanitation leads to disease and sometimes death, especially among the young and vulnerable.
Investors looking to integrate water risk into their portfolios have a variety of options for earning a return and making a positive impact. The vehicle may vary but the objective is the same - invest in organizations that are improving water infrastructure, efficiencies, and quality in a responsible and sustainable way.
Indexes that Track Water Investment Opportunites
There is a relatively small group of water-focused ETFs and they pretty much all track different indexes. Below is a sampling of ETFs available with the index description. Note that some funds are focused on domestic, others global, and methodologies differ - but this can be a starting point for your research.
S&P Global Water Index (Global)
Description: “Designed to measure 100 companies from around the world that are involved in water-related businesses. To ensure diversification across the global water market, the 100 constituents are distributed equally between two distinct clusters of water-related businesses: Water Utilities & Infrastructure and Water Equipment & Materials.”
ETF that tracks this Index: Invesco S&P Global Water ETF (CGW)
ISE Clean Edge Water Index (US-focused)
Description: “A modified market capitalization-weighted index designed to track the performance of companies that derive a substantial portion of their revenues from the potable water and wastewater industry. Industry exposure includes water distribution, infrastructure (pumps, pipes, and valves), water solutions (purification and filtration), and ancillary services such as consulting, construction, and metering.”
ETF that tracks this Index: First Trust Water ETF (FIW)
NASDAQ OMX US Water (US-focused)
Description: “Designed to track the performance of companies creating products that conserve and purify water for homes, businesses and industries that are listed on an U.S. exchange. The index is weighted to enhance the underlying liquidity and increase the tradability of the index components.”
There is also a screen to identify companies that participate in the ‘green economy’. I reached out to Nasdaq Index Services to understand what this exactly means, and they said “To be eligible for these two indexes [meaning Nasdaq OMX US Water and Nasdaq OMX Global Water], companies must be classified as participating in the Green Economy as determined by SustainableBusiness.com LLC”. Here is a post I found on how the two organizations are working together.
ETF that tracks this Index: Invesco Water Resources ETF (PHO)
NASDAQ OMX Global Water (Global)
Description: “Designed to track the performance of companies worldwide that are creating products that conserve and purify water for homes, businesses and industries.” See PHO for details on the ‘green economy’ screen.
ETF that tracks this Index: Invesco Global Water ETF (PIO)
Ecofin Water ESG Index (Global)
Description: “A proprietary, rules-based, modified capitalization-weighted, float-adjusted index comprised of companies that are materially engaged in the water infrastructure or water management industries.” There is an ESG screen and a water revenue requirement. ESG data comes from Sustainalytics and more details on the screen can be found on the ETF page below.
ETF that tracks this Index: Ecofin Global Water ESG Fund (EBLU)
MSCI ACWI IMI Sustainable Water Transition Extended Capped Index (Global)
Description: “Aims to represent the performance of a set of companies from MSCI ACWI IMI that are associated with key aspects of addressing water scarcity through their products or services, and/or through their management of related issues, all assessed within the context of potential contribution towards a circular economy.” This index applies the following business involvement screens: civilian firearms, controversial weapons, oil sands extraction, thermal coal and tobacco.
ETF that tracks this Index: iShares MSCI Water Management Multisector ETF (IWTR)
Source: Morningstar as of 6/8/2023.
Be careful of smaller funds (total assets $MM) that have a higher risk of closing. You many consider holding them in retirement accounts versus taxable accounts to avoid a tax consequence in the case of liquidation.
Water-related stocks
You can look under the hood of the above funds to get an idea of pure plays you might want to make in the space. Here are some examples of stocks that made their way into a water fund.
American Waterworks (AWK) - the largest U.S. public water utility
Danaher (DHR) - provides water testing and treatment equipment.
Roper Technologies (ROP) - provides water meters and leak detection solutions.
Ecolab (ECL) - involved in water optimization, wastewater, and sanitation. They are partnering with Water.org, the non-profit arm of Water Equity mentioned below, to improve clean water access and santitation in India.
Xylem (XYL) - a water technology provider that offers products and services for a variety of sectors including agricultural, commercial, and residential.
Municipal Bonds
Municipalities across the country are issuing bonds to improve their water infrastructure and meet their net zero goals. You can find individual municipal bonds labeled as green with the “use of proceeds” going towards ‘Water and Sewer’ projects.
Private Investments
Higher net-worth individuals may consider riskier investments that are focused on funding a specific technology or solution. If you don’t meet the investor requirements, you may be able to participate with your charitable dollars at a much lower entry point through a Donor Advised Fund (DAF). Here are a couple of examples.
WaterEquity (Private Debt / Private Equity)
Their focus area is climate-resilient infrastructure and affordable financing for household-level solutions.
Burnt Island Ventures (Private Equity)
Their goal is to “fund the best water entrepreneurs in the world”.
Crowdfunding
Crowdfunding allows you to invest a small amount into early-stage, private companies. Here are some crowdfunding sites that may occasionally have water companies on their platform. Crowdfunding is risky and you should never invest more than you can afford to lose.
Learn more about investing in water
Stay tuned to the Investing Forward Podcast as I plan to conduct a couple of episodes about investing in water. As with all investments, conduct your own due diligence and communicate with your trusted advisors before adding any water investments to your portfolio.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients nationwide and is based in San Diego. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a virtual fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and its advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.