By Marta Maretich, Chief Editor, Maximpact, @mmmaretich
Water sector investments continue to be high on the wish-list of many impact investors. But what are the wider issues surrounding investment in water? Maximpact talks to J. Carl Ganter, award-winning CEO and Founder of Circle of Blue and member of the World Economic Forum’s Global Agenda Council on Water Security.
What’s your view of water sector investing?
A few years ago, some venture capital firms invited me to make the rounds in California. I visited three different firms. Two of them had practically the same list of 68 companies to invest in, which they slid across the table with great gravitas. They asked me to comment, to tell them which ones I thought were winners.
What struck me at the time was that all these investments were what I think of as traditional. They were investments in a new type of pump or a new type of filter, for example, or a desalination plant. The venture capital firms, at least at this point, still had a very old world, 20th century, incremental way of thinking about investing in water. They were looking for ways to turn the water crisis into an opportunity by doing what they had always done.
I flipped their perspective and asked, “What if you had known in advance that Australia was under severe drought and its entire rice industry was going to collapse and this was going to ripple across world markets, affecting not only commodities traders, but impacting on the way the UNHCR manages its budgets for human disasters, its ability to buy food for refugees. How would that have changed your water investment choices?”
I don’t think they had ever thought about the wider ramifications of investing in water. Clearly, they weren’t thinking systemically about water. Hopefully, impact investors will take a more sophisticated approach.
What do you mean by “thinking systemically about water”?
I am seeing this as one of the biggest trends in the water sector today. I have an unusual perspective right now, with one foot in the “water buffalo” crowd; the community of water experts and people on the inside of the conversation; and the other in the world of journalism, which requires more of an everyman’s perspective.
In the water buffalo crowd, we’re hearing a lot more talk of a nexus of water, food and energy in a changing climate. In other words, it’s better not to think of water in isolation, but to consider it as part of a system in which those four pieces; water, food, energy and the effects of climate change; are interlinked.
And why is that important for impact investors?
From my experience, it seems that many in the investment community are still trying to figure out where the big play is in the water sector. But by thinking this way, they’re missing a massive opportunity.
If we understand there is a system in operation here, a competition, it’s possible to take a very different approach to everything we do. It’s become our mantra at the WEF, where I’m a member of the Global Agenda Council on Water Security. We joke about tattooing it on our foreheads; water, food and energy in a changing climate. We can’t think exclusively about water anymore; even the dedicated water buffalo’s can’t; we all have to think about the four-part system.
When it comes to impact investing, we need to embed that meta-message so that people looking for capital and impact investors are all thinking systemically. For example, if you’re in micro-finance and your focus is on women’s issues, then you really need to have water and sanitation embedded in your thinking. If you don’t, your work won’t be as effective as it could be. Or it may fail all together.
Why is that? When you bring water to communities in an appropriate way, you bring health, gender equality and education to girls and women. Girls will come to school because there are bathrooms that are safe for them to use. They have time for education because they aren’t carrying water all day. By thinking about these issues systemically, you can really have an outsized impact with the same level of investment.
Apart from thinking systemically, what can we do to be more effective when it comes to investing in water?
At the WEF, we’ve identified two major areas where change needs to happen. Both of these have implications for impact investing.
The first is governance. How do we break down the siloes within governments so that the water ministry talks to the infrastructure ministry and the education ministry? How do we remove the obstacles that prevent institutions from different sectors collaborating? Governance; the systems and processes that encourage cooperation and safeguard accountability; is key to breaking down siloes and creating conditions where collaboration can happen.
The other issue is values: What is the value of water? How much should people pay for water services? To what degree is water a human right? The answers to these questions tell us how much we value water for human use, industrial use, agricultural use and ecological use. Considering the value of water helps us include water in all of our conversations so that it isn’t an afterthought. It shouldn’t come down to a crisis situation if that can be avoided with foresight.
What would you like to say to an impact fund manager trying to put a portfolio together that includes water?
I’d advise someone on the sharp end of investing to think about water impact risk. By this I don’t mean only for water investments, I mean for all investments.
From the micro finance to large-scale bonds, it’s possible to go down the line with each investment, not only in the water world, and rate each one by risk of water impact.
For example, you might have an investment in an energy company. If you’re drawing a percentage of energy from hydro-electric energy, you need to consider how a prolonged drought like the one in California would affect electricity output. If you have investments in manufacturing businesses overseas you need to think about how drought in those parts of the world might ripple through your investments.
Organizations like Ceres have been successful in getting companies to disclose their water and climate risks in their annual reports. They’ve developed a method for assessment that impact investors could learn from.
Any other advice?
Our biggest obstacle lies in what we don’t know about what’s happening around the planet in this competition between water, food and energy. Our first step should be to invest heavily in understanding what is really going on. To this end, the White House recently announced its landmark Climate Data Initiative. Circle of Blue is participating and supporting this initiative with a new data dashboard that displays in real-time California’s water supplies.
This kind of information scaled will provide the key to finding solutions for the water issues we’re facing today. Not only that, but data projects like these will offer deeper insight for investment and return. Impact investors should consider how they can capitalize companies and projects that are collecting data and putting it in context.
One last thing: Do water experts really call themselves Water Buffalos?
(Laughs) Circle of Blue recently did two huge conference calls on water issues that each included about 400 people from around the world, with such experts as Peter Gleick, Jay Famiglietti and Lynn Ingram. I polled the participants beforehand, and many preferred, only half joking, to be identified as water buffalo’s. Perhaps it symbolizes persistence and strength while wading through vast pools of water and mud.
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About J. Carl Ganter: J. Carl Ganter is co-founder and director of Circle of Blue, an internationally recognized center for original front-line reporting, research, and analysis on resource issues, with a focus on the intersection between water, food, and energy. He is a member of the World Economic Forum Global Agenda Council on Water Security and, for more than five years, served on the Woodrow Wilson International Center for Scholars Navigating Peace Water Working Group. In 2012 he received the Rockefeller Foundation Centennial Innovation Award