Impact Blog
Shoring up solutions to the global water crisis

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Calvert disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Calvert are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Calvert fund. References to individual companies for Engagement or Research purposes are provided for illustrative purposes only and may not be representative of the results of all of Calvert’s engagement efforts. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Jade HuangPortfolio Manager, Calvert Research and Management and Yijia Chen, CFAESG Quantitative Research Analyst, Calvert Research and Management

      This is the second of a two-part series of blogs discussing global water risk

      Washington - One of the challenges in combating water risk is that different regions face different problems, sometimes all within a single country. Issues of pollution, access to clean drinking water and adequate wastewater treatment are prevalent in rural, more agricultural regions, while many cities face infrastructure and water-distribution challenges. Water-rights issues can create international conflict where countries share boundaries and resources across rivers, lakes and other water. The World Economic Forum consistently names water security as a top global risk.

      In our view, solutions lie with a multi-pronged and collaborative approach across governments, cities, NGOs, companies, private citizens and investors. We believe water storage, wastewater treatment and regulation, leakage detection, green infrastructure and storm-water management, just to name a few, all have key roles to play in developing long-term solutions to global water challenges. We further believe that investors can make a difference by allocating money to companies pursuing these technologies and engaging with companies to improve their water-management practices.

      Combating the groundwater challenge

      Twelve of the 17 most water-stressed countries are in the Middle East and North Africa (MENA) region.1 Many of these arid countries rely heavily on groundwater, which should be rationed for times of drought. Here, communities often compete with industry, such as water-guzzling garment factories, for scarce supplies. Solutions to scarcity are needed on many fronts. Governments can improve infrastructure to capture rainwater and increase access to safe drinking water for local communities. Companies can utilize less water-intensive products and more innovative recycling technologies in their manufacturing processes.

      Apparel industry: reducing water use

      Many water-intensive apparel companies have factories in MENA countries. In this sub-industry, Calvert looks for companies with innovative water-management practices and technologies, like H&M and Nike. Vast amounts of water are used to produce polyester, cotton and leather apparel and footwear. To reduce water usage, Nike increased its use of recycled polyester and organic cotton, which is grown without synthetic pesticides or fertilizers, reducing groundwater contamination. Both recycled cotton and polyester use far less water than non-recycled materials.

      On the technology front, in 2015 Nike introduced Colordry, a dyeing process that uses recycled carbon dioxide (CO2) instead of water. Colordry has reduced Nike's water usage by 20 million liters a year. Nike's H20 Insight water-analysis tool was used in part as the basis for the Sustainable Apparel Coalitions Higgs Index.

      Cotton production consumes the most water in the apparel supply chain and the fiber is in 40% of all clothing worldwide. H&M's largest raw material is cotton. The company's goal is to source all cotton sustainably by 2020 by increasing its use of rain-fed organic cotton and recycled cotton. Organic cotton does not draw from ground or surface water and recycled cotton saves 20,000 liters of water per kilogram of cotton, according to Trailspace.com, an outdoor gear information site.

      On the supply side, both H&M and Nike have vendor water-management systems in place to monitor and train suppliers on responsible use of water. They are also members of the Better Cotton Initiative, a non-profit developing global standards for sustainable cotton, and of Zero Discharge of Hazardous Chemicals, a group working on a global roadmap for reducing hazardous materials.

      Wastewater: innovative practices

      In the area of wastewater, we are seeing innovative solutions where companies are creating "new" water sources through treatment, reuse and recycling. Elements of wastewater can also be harvested to help lower water-treatment costs. For example, plants in Xiangyang, China and Washington, D.C. reuse or sell the energy- and nutrient-rich byproducts captured during wastewater treatment.

      Iberdrola S.A. is one example of a company advancing water-recycling technology. Its water-recycling process converts 94% of the non-clean, primarily sea water collected at thermal generation and cogeneration facilities into usable water, without affecting the natural environment. For instance, at the La Laguna and Monterrey thermal plants in Mexico, and at the Klamath cogeneration plant in the U.S., the water used for cooling is municipal wastewater collected and treated at Iberdrola's plants. The company's treatment processes return a higher-quality water to the environment than what was withdrawn.

      Although the WRI/Aqueduct data is alarming, these are examples of areas where water solutions are well under way, and we believe multiple channels exist for expanded and new solutions. At Calvert, we seek to invest in companies moving solutions forward to these serious challenges.

      Bottom line: In our view, the global water crisis requires a multi-stakeholder, collaborative approach. Calvert prioritizes water access and water quality risks in both our investment research and investment philosophy.