One of the most pressing issues that will need to be addressed in the coming years is the worsening global water shortage. According to the World Bank, 2.2 billion people don’t have access to safely managed drinking water, while more and more regions are resorting to imposing stringent water restrictions, including parts of the United States and Australia.

With global water demand set to outstrip supply by 40 per cent by 2030, achieving the United Nations’ Sustainable Development Goal 6 (“ensure access to water and sanitation for all”) requires a call for urgent action to resolve the chronic supply-demand imbalance for freshwater resources, particularly as climate change, robust population growth and rising geopolitical tensions work against us in the fight for global water security.

But with these kinds of challenges often come opportunities, so knowing about water risks and the wave of innovations spurred by these concerns can help guide investors’ long-term decision-making.

With extreme weather events on the rise as a result of climate change, the impact on already depleted water supplies is being exacerbated. Indeed, as excessive rainfall, drought and natural disasters are ravaging the world at a greater frequency than before (the UN reported that extreme climate-related disasters were up almost 83 per cent in 2000-2019 versus 1980-1999), we find ourselves in a state of emergency with struggles on both the demand and supply side.

The key demand-driven problem is the overconsumption of water, which results in an overuse of the filtration process — a process that is highly energy intensive and ultimately raises the carbon footprint. As the world’s population is projected to keep climbing in the coming decades, problems surrounding the overuse of water are expected to dramatically worsen. By 2050, international water demand is forecasted to rise between 20 and 30 per cent (and by 50 to 70 per cent in urban areas), according to the World Bank.

With respect to the availability of water, the natural allocation of resources on the globe remains an ongoing issue in many parts of the world. For example, India is undergoing a continuous dispute with China over the construction of a hydropower plant on the Brahmaputra River in Tibet. This action is sparking concern over regulation of the direction of waterflow between the two countries.

On the other side of India, the country continues to experience ongoing tension with Pakistan over the regulation of water flow through rivers resulting from the division of states during the partition of British India in 1947. The already relatively scarce supply of water over the long run is threatened even further as the source of the water — the Himalayan glaciers — continues to melt in the face of global warming. The melting may boost water supply in the short run, but the overall depletion of water will devastate supply in the medium to long term, especially when compounded by the impacts of a growing population over the same period.

This isn’t an issue that is strictly confined to emerging markets. For example, at present, more than half of the U.S. experiences droughts, and 231.4 million acres of U.S. crops are subjected to arid conditions. In the face of unstable global food supplies induced by Russia’s invasion of Ukraine, rapidly worsening drought conditions put further pressure on already tight supply chains in agriculture.

The water crisis is severe and set to worsen if we continue along the current trajectory, but the encouraging news is that disruptive technologies aimed at achieving sustainable supply-demand dynamics in the market for water are in the pipeline. These innovative solutions can be broken down into two categories: solutions to mitigate water demand, and solutions to increase available supply.

More than 70 per cent of global water use is directed towards agriculture, and with demand for food rising in tandem with population growth, the need to disrupt current farming practices through breakthrough technology is imperative. To target wasteful use of water in agriculture, Internet of Things (IoT) devices, including smart irrigation systems, are being used to identify crops that are being overwatered or underwatered, while artificial intelligence-based thermal imaging technology can determine areas of leakage across water distribution networks.

Similar technology is being used to prevent wasting water in homes. Smart metering and leakage prevention systems used in apartment buildings in India successfully curbed water consumption by 35 per cent. Applied on a large scale, these water management technologies could be game changers. Indeed, the U.S. Environmental Protection Agency estimates the average household can account for nearly 10,000 gallons of wasted water (nearly 250 full bathtubs per household) each year.

Other remedies to the crisis lie with technology that aims to increase the amount of available water, largely within the desalination and groundwater access spaces. Recent advancements in desalination equipment and facilities have made this traditionally expensive and energy-intensive practice a more viable option. As for groundwater, emerging extraction and treatment technologies are improving quality and access to this vital source upon which one-third of the global population depends. In the U.S., these innovations could prove particularly useful as more than 90 per cent of the nation’s freshwater lies below the Earth’s surface.

The disruptive technology that has emerged in recent years as a result of the global water shortage presents many opportunities for investors. But there are also options that exist outside the tech realm. As water demand continues its ascent as the global population rises, we expect the S&P 500 water utilities sector to make headway over a longer-term horizon. Water exchange-traded funds are also another solid alternative for equity investors, such as the Invesco Water Resources ETF and First Trust Water ETF.

All in, significant public and private sector investment will be needed to both mitigate demand through promoting water-saving technologies and boost available supply as the global water crisis becomes more acute over the coming decades. In light of the double-hit impact to supply-side constraints of water through ongoing geopolitical tensions and climate-change impacts, investing in countries that are lower risk geopolitically and well-endowed with resources (Canada serves as the prime example here) is advised.

As a result, investors who adjust their portfolios to reflect shifts in the global market for this vital resource are likely to be rewarded, whether it be through investing in emerging tech aimed at solving the chronic undersupply (and overdemand) issue, investing in water ETFs and utilities, or in water-related infrastructure.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Julia Wendling and Alena Neiland are economists there. You can sign up for a free, one-month trial on Rosenberg’s website.