Climate Action

Why investment in water is crucial to tackling the climate crisis

Dew on a thin leaf.

The water sector receives little investment. Image: Unsplash/Jonathan Hislop

Kate Whiting
Senior Writer, Forum Agenda
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  • Water is critical to nearly every aspect of human life and its global economic use value was estimated at $58 trillion in 2021.
  • Despite this, funding gaps for water infrastructure and innovations remain vast. Experts report that the water sector receives less than 1% of all climate-tech investments.
  • Climate investors face challenges navigating the water sector due to long buying cycles, risk-averse institutions, and complex jargon and regulations.
  • As part of the ‘Aquapreneur Innovation Initiative,’ the World Economic Forum’s innovation platform, UpLink, alongside the European Water Tech Accelerator, has published a guide designed to demystify water investment.

As climate change significantly impacts water availability and water quality in cities and regions worldwide, new regulations and measures are emerging to protect this precious resource: from consumption and recycling to industrial use.

Water is critical to every aspect of human life and our collective health. Water is also critical to the global economy and industries’ supply chains.

In 2021, the WWF estimated the global economic use value of water at $58 trillion, equivalent to the combined GDP of China, Germany, India, Japan, and the US.

While the majority of freshwater withdrawals - where it’s taken from the ground or surface water sources - are for agriculture (70%), industry accounts for almost a fifth, and domestic or municipal water withdrawals are around 12%, according to the UN.

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Businesses and livelihoods rely on the water sector

It’s estimated that the risks associated with water availability and quality for industry could be as much as $439 billion.

Where agriculture is the main employment sector in low-income countries, it’s estimated that two in five jobs (80%) are dependent on water.

Water is instrumental to meeting climate goals and concerns around overconsumption are gaining traction among big tech companies, who use it to cool data centres.

The energy sector is also water-intensive, accounting for around 10 to 15% of global withdrawals, which could be reduced by switching to renewable sources.

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Research shows that a 50% increase in renewable energy in the food and drink sector could reduce water consumption by 60%.

Despite this clear need for reliable and accessible water sources, there are huge funding gaps for water infrastructure with estimates for the investment required ranging from $6.7 trillion by 2030 to $22.6 trillion by 2050, according to the Financial Times.

The World Bank finds that more than a quarter of the public funds going into the water sector are not being used, with the sector’s ‘budget execution rates average’ at around 72% between 2009-20 - leaving 28% of allocated funds unspent.

The water sector
The water sector has low budget execution rates. Image: World Bank

Green shoots of water investment

While impact investing is gaining traction, particularly in the clean energy space, water is a frequently overlooked sector by climate investors because it’s highly regulated, technical, jargon heavy, and risk-averse.

Climate technology investment in Europe reached $53 billion in 2021, but less than 1% of that ($455 million) went towards water tech, according to technology hub TNW.

However, the growing severity of droughts, floods and other water-related climate events are pushing entrepreneurs and investors to focus on water conservation and the need for innovative solutions to modernize and protect water infrastructure.

Momentum is growing around investing in the water sector. “Water solutions” now rank number one globally in both the US and Europe for investors being “very” or “somewhat” interested, according to Morgan Stanley’s 2024 report on investor sentiment in sustainability.

The sustainable investment themes investors are most interested in
The sustainable investment themes investors are most interested in. Image: Morgan Stanley

Water is also shaped by those who are entering the market. In recent years, the sector has seen growing interest from large tech companies.

IBM, Microsoft and Amazon have all set water targets and taken a strategic interest in water, a critical resource for cooling their data centres. Microsoft, for example, participated in Emerald Technology Venture’s $100 million water technology-focused fund and partnered with several water start-ups, including Kilimo and FIDO.

But there is much more that needs to happen.

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The World Economic Forum’s UpLink innovation platform has, to date, recognized 20 promising water-focused start-ups, and is providing them with a total of $4 million made available by HCL Group, founding partner of the ‘Aquapreneur Innovation Initiative.’ The first cohort of 10 “Aquapreneurs” has collectively raised $60 million after joining UpLink.

In May 2024, a third Innovation Challenge was launched at the World Water Forum in Bali. The Tackling Water Pollution Challenge is looking for start-ups that are fixing water pollution globally, focusing on preventing contamination at the source, mitigating water run-off, treating contaminated industrial water, or providing water quality solutions for households.

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Now UpLink, alongside the European Water Tech Accelerator, has published a guide designed to demystify water investment, based on insights shared in a series of workshops: “Water Investment for Non-Water Investors”.

Key areas for investment in water technology

The digital transformation of the water sector is essential for improving resource management and sustainability.

Smart water technologies, such as remote sensors, smart irrigation systems and digital twins for urban water management, enable real-time monitoring and efficient use of water resources.

These technologies help detect leaks, optimize water usage, and reduce waste, making water management more resilient to climate impacts.

Innovations in wastewater treatment are also vital for enhancing water quality and availability, reducing the demand for freshwater.

Ceramic membranes (a filtration technology) are making it possible to purify hard-to-treat wastewater to allow for safe reuse, the guide notes.

Advanced treatment processes can remove contaminants more effectively, making treated wastewater safe for reuse in agriculture, industry, and even potable applications.

Areas of impact and investment in water
Areas of impact and investment in water. Image: World Economic Forum

Advice to would-be water investors

“I would say that the network is kind, it’s collaborative, it’s underserved,” Wayne Byrne, Venture Partner, Burnt Island Ventures, told the World Economic Forum.

“There’s a tonne of opportunity, and there’s a tonne of value that can be unlocked.”

Byrne’s three pieces of advice for would-be investors in the water sector were: “Be collaborative, take a portfolio approach and assess the quality and intention of entrepreneurs.”

The Invest in Water guide also urged future investors to:

  • Understand regulations and the market: The water market presents significant opportunities for high returns, but a holistic view is needed when investing. Engage with the water sector systematically, not opportunistically.
  • Invest with those with expertise: When starting, invest with others. The water sector is a welcoming community and open to guiding first-time water investors on their journey.
  • Shape the market: Become a first-mover investor, shaping localized and regional water markets, enabling innovation, finance and policy levers.
  • Find start-ups with water expertise: When assessing the strengths and weaknesses of a start-up, check its team members’ technical understanding of water barriers and opportunities.
  • Act early: Water will only increase in importance over time. Join a growing global coalition of organizations as an early mover, solving water challenges through innovation.

Investment in water technology is essential for addressing the climate crisis. By modernizing water infrastructure and adopting smart water solutions, we can build resilient water systems that support economic growth, protect public health, and mitigate climate impacts. Learn more insights in the paper ‘Investing in Water: A Practical Guide.’

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