Just Add Water

For What It's Worth -

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Hi there,

Our grocery bags may feel much lighter than they did two years ago. First, there’s not as much home baking going on (not sure where that sourdough starter went?), and second, we’re having to think a lot harder about purchases as prices rise. Google says searches for “creative ways to save money” and “states with no income tax” have more than tripled (+200%) in the past 3 months.

And these price increases can be seen in the latest government data. Consumer prices jumped 8.5% in March from a year ago, the fastest increase since 1981, as gasoline and groceries especially took much larger chunks out of our wallets. This news roiled markets, but experts pointed out the silver lining that core prices (which exclude food and energy) are seeing slower increases on a monthly basis. This could be a sign that inflation is peaking, but predictions about the future of inflation rarely survive the test of time.

The latest inflation data and the headlines can get you down, but we doubt this month’s Consumer Price Index data will dampen the enthusiasm of innovators, particularly when companies and founders are motivated to solve big challenges. In fact, we were reminded recently that former Treasury Secretary Larry Summers recommended that instead of focusing on divestment, sustainability-focused investors should focus on finding new emerging technologies as a “strategy for generating positive value.“ While our guidance to new values-aligned investors is unwavering, this is a good reminder of the opportunities that new solutions to the complex problems we face can provide to investors. And that is why you will see FWIW highlighting specific sectors where investors can find multiple options to invest in solutions in the weeks to come. You can find this week’s example — water and access to water — below.

News you can use

  • Stripe, Alphabet, Meta, Shopify, and McKinsey have promised to spend $925 Million carbon removal over the next nine years. Their plan is to support the development of new technologies by guaranteeing demand. Slashing emissions is the main focus in the climate movement, but carbon removal is meant to help us reach net-zero in industries where emissions cannot be helped. Many believe carbon removal is an important part of the puzzle to help achieve our lower carbon goals, but critics have called it “a dangerous distraction.”
  • Spring cleaning? Lululemon is launching its own resale platform on Earth Day and inviting shoppers to trade-in gently used clothing from the store for a gift card. The move, which could help their sales, consumer wallets, and the environment, is part of a growing trend driven by inflation, supply chain delays, and worries about the sustainability of our shopping habits.
  • 68% of CEOs of US companies polled in a recent survey admitted that their own companies have committed greenwashing, and over two-thirds of all CEOs polled questioned whether their company’s sustainability initiatives were genuine. While the majority of the CEOs of companies with over 500 employees surveyed made sustainability a priority and 93% said they would be willing to (or already do) tie a portion of their pay to ESG factors, only 36% said they had the tools in place to track their progress on sustainable initiatives.

We need water, water … everywhere

Most of us are lucky to only think of water in terms of hydration goals and self-care. (FYI: there’s a whole motivational water bottle category.) But in many parts of the world, droughts have intensified in recent years, wreaking havoc on economies and livelihoods. Scarcity of water has led some to see it as more valuable than gold, and experts are warning it could be the next resource countries go to war over.

Here at home, the January-March period was the seventh-driest start of the year on record and driest on record for California. More than 60% of the country was experiencing a drought last month, the highest since 2012. When dry spells are long, as in the American West, it means billions of dollars of agricultural losses, slashed supply to homes and businesses, lower power generation, and more wildfires. It can also threaten access to basics like safe drinking water and sanitation. It is no wonder that states are threatening each other over access to water from the Colorado River.

While there may be a dearth of water in some places, there is no drought of opportunities for values-aligned investors to invest in this area. The options range from backing firms driving the broader green transition to investing in companies developing new ways to manage water efficiently — an area that could see positive impact and profits grow as water demand rises in the coming years.

Wall Street bank Morgan Stanley recently named five water-management categories for investors to look at: desalination (we were shocked when we learned there were 16,000 desalination plants operating in 177 countries right now), smart irrigation, crop/seed science, metering and digital solutions, and vertical farming. The US-listed companies it pointed to were agricultural equipment producers AgCo and Valmont Industries, seed innovators Corteva and Bayer AG, and data management providers Badger Meter, Roper Technologies, Xylem, and Itron. European companies, like Veolia, Suez SA, and Acciona SA, dominate the desalination space (worth studying up on, as it has its own environmental risks that bring to mind the salt on the rim of a margarita), and are available as over-the-counter stocks in the US (here’s what that means).

There are also exciting innovations in the startup world worthy of a futuristic sci-fi novel that will hopefully make its way to public markets soon. For example, BlackRock and Duke Energy-backed Source Global is conjuring water out of thin air and sunlight with hydropanels.

Investors can also bet on this thirst-quenching theme more broadly by buying funds focused on the water industry, like the Invesco Water Resources ETF, First Trust Water ETF, Invesco S&P Global Water Index ETF, and Invesco Global Water ETF. Water ETFs using ESG screens include the Ecofin Global Water ESG Fund (the company also donates 5% of its net revenues to nonprofit Water.org) and the Global X Clean Water ETF. There are also mutual funds like the Calvert Global Water Fund, which tracks the sustainability-focused Calvert Global Water Research Index.

After that long list of stocks and ETFs, it seems like a good idea to remind you that FWIW does not give financial advice, but it is certainly refreshing (hehe) to see how many options are available for those interested in investing in water right now.

In order to better protect your portfolio and align it with your values, it’s also useful to learn and probe how all of the companies you are investing in are managing water scarcity risks — especially if they depend on large, steady supply like the mining sector — and reducing their impact on water resources in terms of consumption or pollution. Water-related disclosures to the global nonprofit CDP are lagging, but it has a list of 118 top firms addressing water security.

Before you go -

Add to the San Francisco Police Department to do list: develop playbook for pulling over driverless cars…