Water is the lifeblood of our planet. It sustains ecosystems, fuels industries, and supports human health. However, access to clean and safe water remains a challenge for billions of people. With mounting pressures from climate change, urbanisation, and population growth, water scarcity has emerged as one of the most pressing global issues. But within this challenge lies an opportunity in the form of solutions. Holding water within your investment portfolio gives you the potential to create positive societal impact alongside financial returns.
Water’s role in achieving the SDGs
Water is central to global sustainability. It plays a pivotal role in advancing the
UN Sustainable Development Goals (UN SDGs)
Here’s how water intersects with the SDGs:
Access to clean water and sanitation reduces poverty by improving health and enabling economic activities. Households without access to potable water can spend a significant portion of their time and/or income sourcing water.
Water is critical for agriculture, which consumes about 70% of global freshwater. Efficient irrigation and sustainable water management are crucial for food security.
Clean water and sanitation prevent waterborne diseases lowering child mortality and improving overall health outcomes.
Schools with proper water, sanitation, and hygiene facilities see better attendance, particularly for girls, who are disproportionately affected by a lack of sanitation.
In many regions, the responsibility for collecting water often falls on women and girls, which restricts their access to education and employment opportunities and can compromise their safety. Improved access to water and sanitation reduces this burden and increases safety.
The energy transition to renewable energy infrastructure requires water (e.g. the manufacturing of semi-conductor chips).
Water is essential for industries like agriculture, manufacturing, and energy. Investing in water infrastructure boosts economic development and creates jobs.
Urban growth increases water demand. Sustainable water management and resilient infrastructure (e.g. flood control systems) are crucial for building safe and sustainable cities.
Water-efficient processes in industries help minimise waste and promote sustainable resource use.
Improved wastewater treatment reduces pollution in waterways, protecting marine and freshwater ecosystems and biodiversity.
Sustainable water use supports terrestrial ecosystems, prevents land degradation, and helps promote sustainable practices in agriculture.
By addressing SDG 6, progress can be made across these interconnected global goals. Water plays a fundamental role in achieving sustainable development.
The water sector: a growing industry with resilient solutions
Water is a global resource that underpins life and economic activity. Its indispensability makes it a uniquely resilient investment theme. Unlike other commodities, water has no substitute; demand remains constant across sectors, from agriculture and transportation to healthcare and technology. This resilience is evident in the market. Whilst past performance is not a reliable indicator of future performance, in recent years, water-focused investments have often delivered more stable returns compared to broader indices, reflecting the sector’s enduring growth potential.
The water industry supports over $58 trillion[2] in global economic activity, spanning multiple sectors. From advanced technologies for water treatment to precision irrigation in agriculture, innovation is transforming how water is managed and utilised. This is driving significant investment, as both governments and private enterprises recognise the urgent need to modernise infrastructure and adopt sustainable solutions.
In the US, the Infrastructure Investment and Jobs Act is an example of this shift, with more than $50 billion earmarked specifically for water projects.[3] These funds are already being deployed to replace ageing pipelines, improve water treatment systems, and enhance stormwater management. This modernisation effort not only boosts water quality but also builds resilience against climate-related challenges such as floods and droughts.
Key growth drivers for water investments
The growth of the water sector is supported by long-term structural drivers: increasing urbanisation, population growth, and the intensifying effects of climate change. The S&P Global Water Index includes 134 companies with a combined market capitalisation of £470 billion.[4] This shows the sector’s diverse value chain and investible opportunities.
Several factors are driving growth in the water sector:
Economic growth and infrastructure modernisation
Many cities currently rely on outdated water systems. Upgrading these pipelines, treatment facilities, and stormwater management systems presents a variety of investment opportunities.
Resource efficiency
With water becoming scarcer, innovation is needed. From precision irrigation in agriculture to optimised water use in farming to water-saving devices in homes, efficiency technologies are helping manage water’s finite stores.
Urbanisation
By 2050, 68% of the global population will reside in urban areas,[5] significantly increasing water demand. Investments in urban water infrastructure will be essential to meet this rising need.
Climate change resilience
Extreme weather events, droughts, floods and rising sea levels, are putting pressure on water systems. Investments in climate-resilient infrastructure such as desalination plants and flood management systems are becoming essential to mitigate climate risks.
Health and pollution prevention and control
Clean water is a necessity for human life. Companies developing advanced water filtration and wastewater treatment technologies are on the frontlines of combatting waterborne diseases and pollution globally.
Tribe’s twin-lens approach: investment and impact outcomes
At Tribe, we assess all investments through our twin-lens: investment and impact. When assessing water investments, some of the top key performance criteria which each team looks at include:
Investment lens
1. Market leadership: nationwide coverage and public sector focus
A company’s ability to secure and maintain a strong market position is a key element in our investment analysis. In the water sector, particularly in regions like the US, the public sector plays a significant role in procurement. Municipalities and local governments are responsible for critical water infrastructure projects, including pipeline upgrades, water treatment facilities, and stormwater management systems.
- Localised purchasing in the US: unlike centralised procurement models, public sector purchases in the US are predominantly made at the local or municipal level. Companies that can provide broad geographic coverage have a competitive edge, as they can often meet the diverse needs of multiple municipalities simultaneously.
- Nationwide sales and distribution networks: to maintain market leadership, water companies must build extensive distribution networks. This ensures that products and services can be delivered efficiently across vast regions, enabling them to capture a larger share of the public sector market.
Example: (we are using one of our water holdings to demonstrate our impact investment process)
*One of our direct holdings illustrates this approach. As a US-listed company, it has strategically expanded its footprint through a combination of organic growth and acquisitions. By broadening its geographic coverage and diversifying its product offerings, it has positioned itself as a one-stop shop for municipalities seeking water infrastructure solutions. This comprehensive service model strengthens its relationships with public sector clients, solidifying its market leadership.
2. Large research and development (R&D) budgets: maintaining technology leadership
Innovation is at the heart of solving the world’s water challenges, and companies that invest heavily in R&D are better positioned to lead the market. In our assessment, a strong R&D commitment indicates a company’s ability to drive technological advancements, stay ahead of competitors, and adapt to emerging trends.
- Technology leadership: companies with high R&D spending often lead the way in developing cutting-edge solutions, such as advanced water filtration systems, desalination technologies, and smart water management tools. These innovations are critical for improving water efficiency and addressing global water scarcity.
- Competitive edge: a strong pipeline of new technologies not only differentiates a company from its peers but also allows it to capture premium pricing and secure long-term contracts with industrial and municipal clients.
- Sustainability and efficiency: innovations in water-saving technologies, such as precision irrigation or energy-efficient wastewater treatment, contribute directly to environmental sustainability.
By prioritising companies with robust R&D budgets, we ensure that our portfolios include leaders in technological innovation, capable of driving both performance and sustainability outcomes.
3. Track record: Return on Investment (RoI) and cash generation
A company’s financial health and performance metrics are critical indicators of its long-term viability. In the water sector, we specifically look for businesses with a proven ability to generate strong and improving RoI and cash flow.
- Consistent financial performance: companies that deliver consistently high RoI demonstrate efficient capital allocation and operational excellence. This is particularly important in capital-intensive industries like water infrastructure, where large upfront investments are common.
- Improving profitability: we favour businesses that show a clear trajectory of improving financial metrics, such as expanding operating margins and growing free cash flow. These indicators suggest that the company is not only maintaining profitability but also optimising its operations over time.
- Resilience and flexibility: strong cash generation provides companies with the financial flexibility to reinvest in growth opportunities, weather economic downturns, and return value to shareholders through dividends or buybacks. In the water sector, this resilience is especially important given the long-term nature of infrastructure projects and regulatory cycles.
By focusing on companies with a solid track record of financial performance, we ensure that our investments are both resilient and capable of delivering sustainable, long-term growth.
Impact lens
1. Positive environmental and social outcomes
When selecting water investments, a primary focus is on their ability to deliver meaningful environmental and social impact. We seek companies that actively address critical water challenges, ranging from improving access to clean water (social outcome) to mitigating the impact of pollution and climate change (environmental outcome).
Example: (we are using one of our water holdings to demonstrate our impact investment process)
*One of our direct holdings is particularly impressive in this regard. In 2023, it prevented 7 billion cubic metres of polluted water from flooding communities or entering waterways untreated. Its robust sustainability goals include providing access to clean water and sanitation to 20 million people by 2025 and delivering WASH (Water, Sanitation, and Hygiene) education to 15 million people.[6]
Following an acquisition, the company has set ambitious new targets for 2030: reaching an additional 80 million people with climate-resilient WASH solutions and capacity-building in water-insecure regions.[7] These commitments, underpinned by a track record of positive outcomes, exemplify the type of impact we look for in our portfolios.
2. Shareholder alignment: prioritising affordable and equitable water solutions
Access to water is a basic human right, which makes shareholder alignment a crucial aspect of our impact assessment. Companies that prioritise affordability and equity in their water-related services are more likely to have a meaningful, long-term impact. To ensure this focus, we look for:
- High Environmental, Social and Governance (ESG) investor base: companies with a strong base of ESG-aligned investors signal a shared commitment to sustainability and responsible business practices. These investors often push for higher environmental and social performance, aligning company priorities with broader societal goals.
- Proactive ESG engagement: We value businesses that regularly engage with their shareholders on ESG topics. This signals not only a willingness to improve but also a proactive stance on incorporating stakeholder feedback. It also opens opportunities for collaboration on new sustainability initiatives.
- Simplified ownership structures: complex ownership structures can weaken an investor’s ability to drive meaningful change through engagement and stewardship. We look for businesses with clear and accountable governance, including stakeholder engagement, to ensure we can readily access the management teams and collaborate effectively with other owners.
3. Strong sustainability performance across operations
The water sector, whilst impactful, can be resource-intensive. Therefore, we place significant emphasis on companies demonstrating strong sustainability performance, particularly in resource efficiency, energy use, and advocacy.
- Resource efficiency: given the high water and energy demands of some water-related technologies, we evaluate whether companies are actively working to minimise their resource footprint. This includes innovations to reduce water loss, improve energy efficiency, and recycle materials in their processes.
- Energy use and decarbonisation: with many water utilities and infrastructure projects requiring substantial energy, we assess their commitments to reducing carbon intensity and absolute carbon emissions. Companies with Science-Based Targets (SBTs) and other evidence-based commitments are prioritised.
- Advocacy and policy engagement: companies that actively engage in policy discussions or advocate for sustainable water practices are vital. These efforts can influence regulatory frameworks, drive industry-wide improvements, and ensure the long-term sustainability of water resources.
Example: (we are using one of our water holdings to demonstrate our impact investment process)
*One of our holdings has recently resubmitted its approved SBT for re-validation post-acquisition of another large water company. As a company committed to driving continual improvement across its own operations and supply chain, understanding its supply chain and broader industry context is important. The company recently publicly released a unique survey of over 100 water utilities globally. 75% of those surveyed have set greenhouse gas (GHG) reduction goals, with nearly half targeting net-zero emissions by 2040 or earlier.[8] The outreach and engagement by this company and the evidence it makes publicly available for others to use are signs of the type of leadership we look for.
Driving solutions for a water-secure future
Water sits at the centre of life, sustainability, and global economic progress. As challenges with climate change, urbanisation, and resource scarcity rise, the water sector offers a unique opportunity to align financial growth with meaningful impact.
By modernising infrastructure, advancing technology, and improving access, water-focused investments can help address a range of global challenges. By integrating water into investment strategies, we have the chance to contribute to a future where clean, reliable water is accessible to all—advancing both the global economy and broader sustainable development goals.
*Holdings of Xylem has been used as an example to help demonstrate Tribe’s investment approach. Xylem is currently held in our environmental, social, multi-theme and SIMPS portfolios and makes up 0.64% across these portfolios as at 01/12/2024.
Holdings of Xylem in Tribe portfolios are subject to change depending on Tribe’s internal views or market conditions.
[1] World Bank Blogs. Globally, 70% of freshwater is used for agriculture
[2] WWF. WWF Report: Water crisis threatens US$58 trillion in economic value, food security and sustainability
[3] EPA United States Environmental Protection Agency. Water Infrastructure Investments
[4] Bloomberg (November, 2024)
[5] United Nations | Department of Economic and Social Affairs. 68% of the world population projected to live in urban areas by 2050, says UN
[6] Xylem. 2023 Sustainability Report.
[7] Ibid.
