While artificial intelligence (AI) grabs most of the financial news headlines in 2023, there is another area of technology that’s increasingly in the spotlight.

This technology is related to the one thing everything else on the planet relies on: water.

Earlier this year, the United Nations World Water Development Report 2023 made for grim reading. Here’s a summary of some of the key points…

Globally, 2 billion people (26% of the population) do not have safe drinking water and 3.6 billion (46%) lack access to safely managed sanitation. Between two and three billion people experience water shortages for at least one month per year, posing severe risks, notably through food security and access to electricity.

The global urban population facing water scarcity could double from 930 million in 2016 to between 1.7 billion and 2.4 billion people in 2050. The UN report added that the growing incidence of extreme and prolonged droughts is also stressing ecosystems, with dire consequences for both plants and animals.

Investor interest in water technology has been on the rise of late, as concern mounts about widespread shortages and contamination, and as companies rush to shore up their water supplies.

Water scarcity will become a defining characteristic of the next few decades. This will end up creating both new opportunities and new risks for investors.

Invest Now in Water Technologies

Demand for fresh water is rising in tandem with the human population and growing prosperity in the developing world. By 2030, water demand will be 40% higher than supply, according to a study by consultancy McKinsey.

A team of analysts at Jefferies recently said that “now is the time” for investors to look at companies working to provide clean water, and I totally agree. The analysts noted that companies are getting increasingly nervous about their water supply, as the effects from climate change become more apparent.

One piece of good news, though, is that government policy is finally starting to offer attractive financial incentives in this space. For example, there are investment credits offered for certain types of wastewater treatment in the Inflation Reduction Act (IRA).

So how can the growing water scarcity problem be tackled?

A recent opinion piece from the Financial Times’ Lex team provides some of the answers.

Bridging the Gap

The article suggested that bridging the expanding gap between supply and demand for fresh water will require investment into three main water technologies.

The lowest cost method involves water conservation, which is…

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