Issue Brief: Water

Water is vital to all aspects of life. It is a natural resource for which there is no substitute. Water sustains our physical existence and drives the engines of commerce, from agriculture to manufacturing to medicine. For some people, including Native Americans and Indigenous Peoples around the world, water is an integral part of their religious ceremonies. While two-thirds of the globe is covered by water, only 3% of it is fresh—and less than 1% of that fresh water supply is available for human consumption. Increasingly, our world faces serious water issues—from chronic shortages, to threats to water quality, to aging infrastructure and waste, to growing demand from developing countries. The sustainability issues surrounding water are multidimensional and complex. The questions around who has water and who doesn’t—or who controls access to clean water and what it costs—highlight issues with deep economic, political, and social implications. Asia, for example, has 60% of the world’s population, but only 36% of its water supply. China, India, and Mexico are all experiencing severe water stress from growing industrialization. Almost every major river system on the planet is shared by two or more nations, making water a source of international conflict and a matter of national security. In addition, serious infrastructure issues threaten water supplies and distribution. Water is clearly not a stand-alone issue, but must be considered in relation to commerce, land use, human rights, environmental protection, and climate change.

Access to Water: A Basic Human Right

Since water supports all life, Calvert regards access to clean, affordable water and adequate sanitation as a basic human right—a viewpoint adopted in a United Nations’ July 2010 resolution. Accordingly, we believe every company whose products or services entail water usage has a corporate responsibility to enforce sustainable practices across its supply chain. The statistics around clean water are startling: the UN reports that 1.1 billion people do not have access to clean drinking water and some 2.4 billion lack adequate sanitation—and millions die every year from largely preventable water-borne illnesses. At its most fundamental level, water supply is a local issue, affecting communities, work opportunities, agriculture, families, and a region’s social welfare. While water issues cut across all industries, the industries presenting the greatest sustainability risks are those that require a high volume of water, a supply of clean water, or face risk from intensifying water competition. Companies that rely directly on water for their products, such as those in the beverage and agricultural industries, pose the highest risks. In addition, clothing manufacturers, food and drug companies, hotels and resorts, and chemical companies are greatly dependent on water for the production of their goods or services—and are closely scrutinized by Calvert. The oil and gas industries, where water is a critical process ingredient to almost all areas of exploration and production, are also closely monitored.

Companies Called to Disclose Their Water Risks

There is growing awareness and expectation that companies in these water-intensive industries will publicly disclose key water risks, especially where the physical effects of climate change are likely to have an impact on their long-term business prospects. In January 2010, the Securities and Exchange Commission issued interpretive guidance about corporate disclosure requirements, stating that a company’s water risks are material and should be included in the discussion of climate risk. When evaluating a company’s water sustainability practices, Calvert examines a company’s complete water “footprint” and its product(s) along the entire supply chain. Where appropriate, and to support advocacy efforts around water management, Calvert evaluates how much water it takes to produce a product, how much pollution is created, and whether the company is operating in a water-constrained area. We examine a company’s supply chain oversight—as well as its manufacturing processes. Where manufacturing was once regarded as a main culprit in water sustainability issues, there is increasing evidence that points to the supply chain as the critical link. Often, for example, more water is used in growing sugar beets or cultivating wheat than is used in manufacturing the end-product of sugar or cereal. Accordingly, investigating the relationship between suppliers, manufacturers, and users is critical in evaluating water sustainability issues. Calvert also considers a range of corporate and industry “leading” practices in evaluating how well a company is monitoring and managing its water sustainability impacts. Topping the list is whether a company discloses its water usage, water sourcing, and conservation practices and if it publishes an annual or biannual sustainability report. In the beverage industry, we look at how rigorously a company evaluates and plans to manage its water impacts before locating a new plant in a water-constrained area. For farms and in industrial areas, efficiently recycling waste water is a key marker.

Opportunity Amidst Crisis

From an investment perspective—as the world’s water crisis has rallied public and private sectors across the globe to tackle the crisis—businesses have begun to see real opportunity to add new markets or create value. In fact, some of the world’s largest multinational companies are reinventing themselves. Chemical and industrial companies that were former polluters are now making products used for water distribution and efficiency, water filtration, and water purification. Of course, smaller, leading-edge “green” companies involved in infrastructure solutions, water-technology efficiency, desalination techniques, and waste water treatment will play a critical role in addressing the impending water crisis. Looking ahead, it is clear that the world will be tackling critical water resource issues for years to come. Calvert is committed to being a part of the global water solution through our advocacy efforts related to water and our investment in companies striving to develop forward-thinking, technological solutions for this serious global issue.

A Note on Bottled Water: Calvert’s investment strategy for the investable water sector does not include companies that package or resell bottled water, processes that are associated with a number of prob¬lematic environmental issues. And, the packaging, production, transportation, and disposal of bottled water can cost anywhere from 500 to 4,000 times more than supplying the same amount of tap water.

See an overview of how Calvert’s sustainable and responsible investment (SRI) criteria are applied to Calvert’s mutual fund offerings »

SRI criteria will vary from fund to fund. Please see a fund's prospectus for details.