Davos edition 2020 Research Institute Water scarcity: Addressing the key challenges Thought leadership from Credit Suisse and the world’s foremost experts Editorial Water scarcity, and the societal risks it poses, is Addressing the consequences of the problem one of the primary challenges faced by the world is central to six of the United Nations Sustain- today. Over two billion people still live in coun- ability Goals (SDGs). The social and economic tries experiencing high water stress, while four benefits are clear, but meeting the aims of the billion people experience severe water scarcity SDGs comes at a cost. The OECD estimates for at least one month a year. Poor water quality the investment needed to address water scarcity exacerbates the issue, with 80% of waste water globally at USD 13.6 trillion between 2016 and globally being returned to the environment un- 2030. Beside governments, private sector capital treated, while 4.5 billion people still lack access has to play a more substantial role in developing to safely managed sanitation services. As with the necessary infrastructure and new technol- any scarce resource, security of supply and related ogies. Accordingly, we consider regulatory and disputes around it threaten to become a rising financial frameworks needed to achieve this goal. source of geopolitical tension. We hope that our findings will prove valuable and Sources of the problem show no immediate sign wish you an interesting read. of dissipating. With the world’s population set to increase to over ten billion by 2050 from around seven billion today, water demand can potentially Urs Rohner increase by more than 70% driven by urbaniza- Chairman of the Board of Directors tion and changing consumption patterns in the Credit Suisse Group AG emerging world. Also, water stress and climate change are inextricably linked with the related disruption in rainfall patterns. The severe bush- fires in Australia are a stark reminder, although only one of a series of extreme weather events. 2 02 Editorial 05 1. Water scarcity: Framing the problem Eugène Klerk, Richard Kersley, Oliver Isaac 11 2. Water demand: A secular challenge Eugène Klerk, Oliver Isaac 23 3. Water supply: A static problem Eugène Klerk, Oliver Isaac 31 4. Climate change and water stress Phineas Glover, April Lowis 41 5. Water scarcity and geopolitical stress Phineas Glover, April Lowis 47 6. Water and the Sustainable Development Goals Eugène Klerk, Oliver Isaac 53 7. Investment requirements and challenges Eugène Klerk, Phineas Glover, John Walsh 60 General disclaimer/important information For more information, contact: Richard Kersley Head of Global Thematic Research, Global Markets Credit Suisse International [email protected] Credit Suisse Research Institute [email protected] Cover photo: GettyImages, Traceydee Photography Cover photo: GettyImages, Traceydee credit-suisse.com/researchinstitute Water scarcity: Addressing the key challenges 3 4 1. Water scarcity: Framing the problem Eugène Klerk, Richard Kersley, Oliver Isaac The great irony surrounding the problem of water scarcity is that water as a resource is widely available, but only a small percentage is readily available for human consumption. With freshwater accounting for less than 1/100th of 1% of the planet’s total water, we note that addressing water scarcity requires improving the efficiency with which we use, and reuse, the total amount of water available, including that supplied by the natural water cycle through precipitation, not least because desali- nation is too expensive at this point. Water is paradoxically abundant and scarce at the same time. Figure 1: Excluding inaccessible and saline water leaves only The problem today a fraction that is readily available for human consumption According to the United Nations, water use has more than tripled since the 1950s, growing by Freshwater, Surface water, Streams and more than twice the rate of population growth 100% 0.30% 2.75% rivers, over the last century. Specific targets related to 90% 1.30% Underground, water, sanitation and hygiene have been included 80% 24.50% as part of the UN Sustainable Development 70% Other, 0.20% Goals (SDGs, see Chapter 6 on page 71), and 60% while some progress has been achieved on Saltwater, these, much remains to be done. For example, 50% 97.25% Ice & glaciers, Lakes, 98.70% over two billion people still live in countries 40% 74.90% experiencing high water stress, while four billion 30% people experience severe water scarcity for at 20% least one month a year. Furthermore, only one in three countries with less than 99% of basic 10% water coverage is on track to achieve the re- 0% quired “nearly universal” coverage stipulated by Water on the earth… … of which freshwater ...of which surface water SDG6 by 2030, and only four out of ten people around the world use safely managed sanitation Source: Michael J Pidwirny, Credit Suisse research services (40% of people globally do not have basic handwashing facilities at home). Water scarcity: Addressing the key challenges 5 The problem tomorrow of water, one pair of jeans requires over 7,000 liters of water, while leather boots can require Forecasts from the Organisation for Economic more than 15,000 liters per pair. A growing Co-operation and Development (OECD) indi- emerging middle class adopting a “developed cate that water demand will continue to grow consumer approach” would put significant incre- at a similar rate as the past 30 years, resulting mental stress on already challenged freshwater in an estimated 35.1% increase by 2050. availability. This in turn should drive local govern- Although agriculture currently represents 69% ments to support policies that adopt a circular of global water use, the majority of incremental economic model. water demand is expected to come from industry, which includes energy generation, currently at 19% of total water use. Domestic use makes up the balance at 12%. Figure 2: Water use by sector – agriculture constitutes Industry-related water use is likely to be almost 69% of water consumption 120% higher in 2050. Sectors that are most Households water-intensive include metals and mining, utilities, 12% energy, consumer staples and automobiles. Household-related water consumption is likely to rise 65% between now and 2050 as the pene- Industry tration of water-consuming appliances and basic (including power water infrastructure increases. generation 19% The likely increase in water demand is set to put the water supply-demand imbalance under even more pressure. In order to alleviate some of this Agriculture pressure, we believe that consumer behavior will 69% likely need to adapt. The reason for this is that a wide range of consumer products that could see incremental demand from consumers in developing countries as their disposable incomes rise are Source: UN, Credit Suisse research high in water intensity. For example, producing one ton of beef requires more than 15,000 liters Figure 3: Access to water has improved globally, but significant regional differences remain (progress on household drinking water, sanitation and hygiene 2000–2017) 100 4 8 90 22 80 32 34 70 60 40 50 100 100 95 93 34 90 92 40 81 84 74 30 28 60 56 52 55 20 41 27 10 18 0 2000 2017 2000 2017 2000 2017 2000 2017 2000 2017 2000 2017 2000 2017 2000 2017 Sub-Saharan Central and Latin America and Europe and Oceania Eastern and Northern Africa Australia and New Africa Southern Asia the Caribbean Northern America Southeastern Asia and Western Asia Zealand Safely managed Basic Limited Unimproved Surface water Source: UNICEF, WHO, Credit Suisse research 6 Further stress on water is added by climate The potential cost of water stress should not be change through increasing drought, flooding underestimated, in our view. The World Bank and soil degradation. Overall, the United Nations has estimated that water scarcity exacerbated predicts that, by 2050, up to 5.7 billion people by climate change could cost some regions around the globe will live in areas that are water- more than 6% of gross domestic product scarce, with the overall majority in developing (GDP) by 2050. Additional risks include water- countries. Furthermore, the number of people related conflicts and increased migration. In at risk from flooding will have increased to 1.6 2017, some 22–24 million people were forced billion from 1.2 billion today. Four out of every to move due to weather events such as drought five people impacted by sea-level rise will likely and flooding. The World Bank believes that the live in East and Southeast Asia. number of climate-related migrants in Latin America, sub-Saharan Africa and Southeast Asia will reach 143 million by 2050, unless water scarcity and climate change are addressed. Figure 4: Projected growth in types of freshwater use – households and industry to drive incremental withdrawals Water quality, sanitation and hygiene 119.8% 130% As much as access to water remains a chal- 110% lenge, the quality of water is also a problem. 90% According to the World Water Assessment 65.1% 70% Programme (WWAP) in 2017, worldwide, over 53.3% 36.5% 80% of all wastewater returns to the environ- 50% ment without being treated, which leads to 30% water-related diseases such as cholera and 10% schistosomiasis. Access to safely managed -10% sanitation services also remains poor, with 4.5 -3.6% -6.9% billion people globally lacking access to these -30% facilities according to a report from the World -50% Health Organization (WHO) and the