Investors tapping into water as new “asset class”

A key to social resilience in the coming decades will be providing fair and reliable access to water.  And now is the time for resilient investors to consider how they feel about private companies taking the lead in making it so.  A recent NYT article introduces some of the key players in one of the leading edges of this hot-button topic, parched California:

“Water has been taken for granted, but reliable access is no longer guaranteed,” said Disque D. Deane Jr., a Wall Street veteran who runs Water Asset Management. “It will be seen as an asset class that will be allocated in portfolios like health care stocks or energy or real estate.”

The article does not touch on the most contentious issue, privatization of municipal water systems.  Instead, its focus is on desalination plants and delivering underground reserves in the Mojave to coastal cities.  Social and environmental considerations are likely to be deployed by both advocates and critics of projects like these; it’s bound to be another issue that splits the establishment green community (as have GMOs, nukes, and larger ideas like ecomodernism); so if you want to make an informed choice that reflects your own best thinking and deepest feeling, we recommend that you aim to become at least somewhat informed about the debate here.

For starters, the NYT piece gives a good introduction to the mindset that sees private investment as a valuable player in creating the extensive new infrastructure systems that will be required.  One featured company, Cadiz, has been raising money from investors for 25 years and is still awaiting more than trickle of revenues; likewise, Poseidon, owner of the nation’s largest desalination plant, has weathered 15 years of project development, though the plant is indeed now about to be activated.  To some degree, these companies are taking the risks of being on the forefront, moving forward in areas where agencies and existing public utilities have not yet mustered the will to invest.

The question will be: how are the deals that are eventually made to buy this water and add it to public systems be structured?  Are the prices fair, or exorbitant?  For example, when the Poseidon plant comes online, water rates will rise about $5/month (a 7% increase) for San Diego customers.  Water consultant Steve Maxwell stresses that “It doesn’t make any difference whether it’s a public agency or a private company that manages your water, the prices are going up. It’s not because of municipal inefficiency or corporate greed. It’s because we’re running out of water.”

While the NYT piece briefly quotes one critic, Food and Water Watch, you’ll need to dig further to get the full story on why some NGOs resist projects like these; here’s Food and Water Watch’s page on why they have opposed the desalination plant:

Desalination shouldn’t be used as a quick fix to our water shortage problems. Conservation and recycling programs may be a much less expensive and less risky alternative to building desalination plants. If you’re from California, Florida, Massachusetts, or Texas, you’ll want to pay particular attention because desal companies want to make your state a national guinea pig.

They also reject the widespread acceptance of “public-private partnerships” like those that led to the Poseidon desalination plant, advocating instead for public-public partnerships, i.e., collaborations between several public utilities.

Those without an appetite for the controversies over private companies as suppliers of water to public utilities are still finding ways to participate in the projected boom of water as an investment class.  The NYT article also includes mention of funds that are investing in purification companies and makers of pumps and reverse osmosis membranes, which will be suppliers to the front-line companies.  This is a secondary exposure that some SRI-oriented resilient investors may also want to consider carefully.

UPDATE, 2/15/16: This recent ProPublica article digs into other recent efforts by financiers to buy up water rights on ranches; includes discussion of the option of farmers leasing part of their water rights, rather than selling them all with the land.

As with your decisions across the entire Resilient Investing Map, each of us will make choices that best fit our own personal needs, social goals and desires, and ethical standards.  There’s no “right” answer to questions like this one—though you do indeed need to grapple with them if you want to make informed decisions in our rapidly changing investment landscape.

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