Can you recall the news images from the summer of 2022? Major European rivers without water, dried out fields, Lake Neusiedl reaching its lowest level since the start of recordings in 1965... This summer was not only one of the hottest ever measured in Europe: Large parts of the continent also suffered from the worst drought in decades.
Similar weather conditions were a problem elsewhere on the planet as well. It was unusually warm in North America, and China was also hit by a major drought. According to experts, the summer of 2022 with its heat and drought in Europe will probably not go down in history as an exception, as the current Water Scarcity could become the new normal. Even in regions that have enjoyed a relatively comfortable supply of water in the past.
Water Scarcity: heat and drought with significant impacts
Water Scarcity can have significant impacts on the economy, industry, energy production, and the agricultural sector, and thus essentially affects all aspects of life. Consequently, using water more efficiently, polluting it less, and cleaning and recycling it better is an urgent challenge that must be faced. Raiffeisen-MegaTrends-ESG-Aktien takes this topic into account by investing in companies that develop solutions to overcome or mitigate water scarcity.
Economic effects of Water Scarcity
According to the Austrian Hail Insurance, the 2022 drought resulted in total damages of EUR 100 million in Austria’s agricultural sector. But Water Scarcity also has major consequences for industry as well. The production of many goods, ranging from day-to-day items to computer chips, is jeopardised, if not enough water is available. Low water levels in rivers also have massive impacts on the energy sector.
A lot of water needed
Enormous amounts of water are needed, not only for the production of hydroelectric energy, but also for the cooling of nuclear power plants. In Switzerland, for example, production at the Beznau nuclear power plant had to be cut back due to the high water temperatures. In France, regulatory exceptions were allowed so that not too many reactors would have to be shut down due to the elevated temperatures in the adjacent rivers. In Italy, many hydroelectric plants could no longer generate electricity due to the low water levels. This had tangible effects in Austria as well, as the already high electricity prices increased even more.
Billions already impacted
Outside of Europe, Water Scarcity has been an issue since time immemorial. Almost four billion people are now affected at least briefly each year by a lack of water. Furthermore, around two billion people live in countries with inadequate water supply. Despite more efficient use and conservation efforts, global water demand is projected to rise significantly in the coming two decades, in the industrial, private, and agricultural fields.
In one possible scenario, increasing Water Scarcity may result in reduced food supplies, triggering higher food prices which could lead to political and social instability. By 2030, some 700 million people could be forced to migrate due to lack of water, and by 2040 one out of every four children will live in areas that suffer from extreme water scarcity. The more sustainable use of water as a valuable resource (more efficient use, less pollution, better water treatment, etc.) is becoming an increasingly critical issue. With the events this year, this issue is probably much more topical in Europe, which up to now at least has enjoyed a generous supply of water.
Rising demand, falling supply
In the last 100 years, water demand has increased by around 600%. Translating these figures into an annual rate of increase, this yields a figure of “just” 1.8 per cent. While this may sound relatively harmless, the problem is that supply, i.e. the planet’s water resources, is essentially not able to grow. Indeed, due to pollution, we tend to have an ever-smaller supply of useable water at our disposal. This results in increasingly severe shortages of water. Other driving factors in this trend include demographics and economic growth.
Water-related equities in Raiffeisen-MegaTrends-ESG-Aktien
Raiffeisen-MegaTrends-ESG-Aktien invests in companies that are pursuing solutions to help address and mitigate Water Scarcity. Three of these firms in the fund’s portfolio are:
Evoqua Water Technologies: This US company is a leading supplier of water and wastewater treatment facilities and offers a wide portfolio of products and services for the treatment of industrial, commercial, and municipal wastewater, as well as treatment for potable water. With the mounting shortage of water, the need for the water and wastewater treatment facilities offered by Evoqua will continue to increase in the foreseeable future.
Energy Recovery is another company in the fund’s portfolio which is active in the field of water. This company’s products can reduce energy consumption at saltwater reverse osmosis (SWRO) plants by up to 60%. Thanks to this significant energy savings, the SWRO process has superseded thermal desalination as the preferred desalination process for seawater.
The company Lindsay offers technologically cutting-edge irrigation solutions, which allow for the more efficient use of water, energy, and labour in the area of conventional flood or surface irrigation systems. As agriculture accounts for nearly 70% of global freshwater consumption, innovative solutions are needed in this field in particular.
The fund exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.