What's the most precious global commodity?

It's all a matter of perspective.

You could easily find 100 people who would argue that it's copper, 100 more who say it's gold, and so on.

Each could make a compelling, solid case for why their commodity was most important.

But few would suggest water...

And why would they?

It's one of the most abundant global resources, and as Bloomberg highlight, it's by far the cheapest commodity...

This abundance (and low pricing) is one of the reasons water has never been a 'traded' commodity, but that's all changing...

In December last year CME launched Water Futures 👇

California Water Futures Begin Trading Amid Fear of Scarcity
Water joined gold, oil and other commodities traded on Wall Street, highlighting worries that the life-sustaining natural resource may become scarce across more of the world.

“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,” said RBC Capital Markets managing director and analyst Deane Dray. “We are definitely going to watch how this new water futures contract develops.”

The Blue Planet

Now, you might doubt this...

How can a planet comprising ~70% water ever suffer from water scarcity...

It's those capitalists at it again, financialisation of the world I tells ya!

It's not exactly about money... No more than anything else at least.

It's more about security and stability.

Nearly 70% of the world is covered by water, but only 2.5% of it is freshwater.

The combination of unsustainable management and climate change mean that 'water stress' is now a big concern...

Blackrock - 'Troubled Waters'

According to the World Resource Institute, as many as 3.5 billion people could experience water scarcity by 2025, while demand is projected to grow by up to 30% by 2050.

Water-related conflicts and political instability are on the rise. And climate change is worsening the problem, intensifying floods and droughts, shifting precipitation patterns and sea level rises.

It's clearly a BIG risk.

Industrial and commercial activity accounts for the bulk of freshwater use around the world: The agricultural, textile, energy, industrials, chemicals, pharmaceutical and mining industries account for around 70% of usage, according to CDP’s 2018 Global water report. ‌‌Residential and office use are part of the remaining 30%.

It even impacted chip manufacturing in Taiwan earlier this year...

Growing Global Water Crisis Creates a New ESG Market
The World Health Organization estimates that in less than four years, half of the world’s population will be living in water-stressed areas.

Blackrock see the financial implications of reduced water availability as 'varied', with high cost consequences.

Companies in water-stressed locations can face costs from disrupted production, higher capital expenditures, compliance and enforcement penalties. ‌‌They may need to spend more to mitigate the effects of water stress, such as investments in efficiency, pollution abatement, re-use, recycling and conservation measures.
The takeaway for investors: Companies that manage water resources better than their peers may offer more resilient earnings streams

It can also bring companies into conflict with governments.

The (ongoing) California vs Nestlé battle is the highest profile case so far 👇

Facing Droughts, California Challenges Nestlé Over Water Use
A draft cease-and-desist letter sent to BlueTriton — known until this month as Nestlé Waters North America — is the latest development in a yearslong battle over water resources in the San Bernardino area.

Nestlé, the world’s largest food company, has been involved in similar battles over water collection in other states, including Florida and Michigan.
Critics of the company say that its efforts to drain natural water supplies for bottling have been wasteful, and that the bottles themselves contribute to plastic waste. ‌‌Since at least last year, the company has been considering selling most of its bottled water operations in the United States and Canada. ‌‌The sale and renaming of Nestlé Waters North America is in line with that push.

All of which means it's set to become a big part of the ESG theme...


‌Taking it one step further, what could this mean for agriculture?

Hydroponics and vertical farms are often cited as the future, even as concerns over profitability and scalability prove hard to shake...

How hydroponics could be the future of agriculture and farming - The Manufacturer
Watch any news program these days and, chances are, there will be a feature or story about the impending climate catastrophe facing the Earth. Climate scientists around the world are now largely in agreement that our planet is changing – and mostly because of human intervention. Global warming and c…

Hydroponics use ~90% less water than traditional farming methods, and they can be built anywhere.

With droughts in California 👇

Wells dry up, crops imperiled, farm workers in limbo as California drought grips San Joaquin Valley
As the San Joaquin Valley braces for yet another season of drought, some growers are openly questioning the future of farming here.

‌And hurricanes in Iowa flattening one-third of Iowa's corn crop last year...

Monday storm impacts some 10 million acres of Iowa farmland
Monday’s Derecho storm potentially impacted some 10 million acres (4 million hectares) of Iowa farmland and millions of bushels of grain storage in the top U.S. corn growing state, Iowa Agriculture Secretary Mike Naig said on Tuesday.

Food (in)security comes into play. It's tough to fix, and if not managed properly, can easily lead to political instability. Hungry people will riot fast...

Vertical farming isn't the entire solution.

You can't grow wheat and corn in a vertical farm at scale.

At least not yet.

Water scarcity can easily lead to food insecurity, so the incentives are clear at the political level.

What are the solutions?

Full disclosure, this is what set me thinking 👇

Industrial Scale Membrane Systems for Water Recovery & Re-Use

Doesn't exactly get the juices flowing, does it?

But the use cases are absolutely rock-solid 👇

Applications – New Logic Research

‌From simply recovering groundwater to separating phosphoric fertilizers and filtration of acid mine drainage, the range of uses is phenomenal.

Developments in this field will likely receive little media attention, but the potential impact of these kinds of systems is huge.

Especially as developed economies push for changes that result in greater sustainability and lessen the environmental impact of human activity.

Sticking with the water theme, desalination plants are improving too.

They have their downsides (such as energy intensity and higher associated processing costs), but desalination plants powered by green energy are in development too.

So, here's a line I never thought I'd write...

Watch the development and adoption of water membrane filtration systems & technologies, especially those on a large scale.

Industrial and commercial activity accounts for the bulk of freshwater use around the world: The agricultural, textile, energy, industrials, chemicals, pharmaceutical and mining industries account for around 70% of usage, according to CDP’s 2018 Global water report. ‌‌Residential and office use are part of the remaining 30%.

Why watch this?

Farmers can find new income by battling climate change

The U.S. Department of Agriculture, under recently confirmed Secretary Tom Vilsack, a former Iowa governor, sees an emerging opportunity for farmers to develop a new source of revenue centered on adopting practices that reduce carbon emissions — then selling those carbon offsets to businesses unable to reduce their own emissions.

Lucky farmers getting to complicate their business!
Although it will be hard for them to change methods quickly...

But there's an obvious theme...

We all know how Tesla turns a profit, right?

  • Sales of emissions credits to other automakers (and sales of bitcoin holdings to prove liquidity)

Carbon offsets as a $200 billion revenue stream 👇

"The global carbon offset market is tiny at $0.6 billion (2019) versus the much larger global carbon permit market at $44 billion (2018)," Berenberg said in the note.
"However, the offset market has more than tripled over the past three years and we estimate that the very long-term (2050) addressable market size is huge at ~$200 billion," it said.
Rising additional offset revenues will likely improve the economics of offshore wind and carbon capture and storage (CCS) projects, it said.
"This will likely contribute growth for companies with CCS technology such as Air Liquide, Air Products, Linde and Aker Solutions, and for offshore wind project developers, such as Vestas and Siemens Gamesa," it said.
"We also think that the sale of carbon offsets to third parties could potentially become another revenue stream for the likes of Shell, BP, Eni and Microsoft, which are planning to invest heavily in carbon removal projects over the next five years," Berenberg said.

Global carbon offsets market could be worth $200 bil by 2050: Berenberg | S&P Global Platts
The value of the global market for carbon emissions offsets could increase to $200 billion by 2050, German bank Berenberg said in a note Wednesday.

As the ESG trend grows, it would not be surprising to see new incentives or credits arise for water re-use.

In some cases the incentive to invest in water re-use is built in to the industry already...


Water-stress hot spots are expected to worsen in the coming decades. In Chile, 80 percent of copper production is already located in extremely high water-stressed and arid areas; by 2040, it will be 100 percent.
Depending on the water intensiveness of the processing approach, such changes, while seemingly minor in percentage terms, could be critical to a mine’s operations or license to operate.

Hard to earn if you can't mine...

ESG has been met with a lot of skepticism, most recently highlighted by the new EU regulations to prevent 'greenwashing', and the dichotomy of Tesla bringing in regulatory credits whilst investing in Bitcoin.

It's relatively young, dumb and full of loopholes, but the trend is firm:

Environmental goals and the energy transition will play a large part in company decisions for the next 25 years....

I have great optimism about the future of capitalism and the future health of the economy – not in spite of the energy transition, but because of it. - Larry Fink, Blackrock CEO