The compelling report, “Charting Our Water Future,” was written by the 2030 Water Resources Group, which represents a collaborative effort among multi-national corporations, non-profits, and consulting firms widely respected for their work in sustainability. The team’s year-long data gathering and analysis should serve as a wake-up call that more regions of the world, and a growing population, will continue to run out of water—and therefore food—compared to what we already are experiencing today.

The projected gap is a whopping 40% worldwide. That’s based on average economic and population growth trends and assumes that future gains in water use productivity track history. The raw numbers are mindboggling:  demand is projected to grow to 6900 million meters cubed by 2030. The report states that we will be able to sustainably withdraw 4200 million meters cubed of water annually in 2030.

The lion’s share of water use today is attributed to agriculture and food production—a stunning 70% or more of the total. Industrial and energy represent a combined 17% of all water use, and only about 14% is tied to residential consumption. So while taking quicker showers might make us feel better about doing our share to reduce water use, the more dramatic changes need to occur in food production and industrial activity.

Efforts to meet today’s growing demand for water varies by country and by region.  So far the classic response is fairly similar worldwide: tap more water through energy intensive means, such as desalinization or pumping it hundreds of miles through pipelines.  But pumping water is an energy hog.  Consider this: 12% of U.S. energy consumption goes to water use. That’s more power than we use to light the entire country annually.

Energy intensive sources of new water supply are not a sustainable solution to fix the anticipated future supply and demand gap.  Many will not be able to afford the cost of energy-intensive water sources. And the planet does not need the associated greenhouse gas and related environmental damage.

The solutions to more efficient water use will occur through better application of existing technology, new technology development, and tough policy decisions about who gets water.  The report estimates these efficiency and technology-oriented solutions will require about $60 billion in additional annual capital spending between now and 2030, or just over $1 trillion in total new investment in order to close the gap.

The report’s investment and capital requirement conclusions are generally in line with most of the research I have read on this matter. Furthermore, most reports warn it’s unlikely that the investments will be made uniformly as needed across the rich and poor regions of the world.

Supply and demand gaps are always closed, and this one will be too, in time.  The question is—how?  Will it occur through high water prices, restrictions on use, or a slowdown of economic development in some regions?  Or will dramatic change come through increased conflict, war or its avoidance by governments crafting sensible water use policies?  At Portfolio 21 Investments we would like to see a fair and equitable solution for all, but the reality is that solutions will be cobbled together through a variety of outcomes around the world. There will be winners and losers, in terms of companies, governments, and of course individuals.

Portfolio 21 Investments analyzes the natural resource use policy, practice, and procedures of every company we evaluate.  We have long recognized water as a critical resource for many businesses and we find real differences between the practices of different companies, even in the same industry.  As water becomes more difficult to access, companies that have developed the processes to operate with less water, to use water more efficiently, and that have a secure supply of water may have a better competitive position than those that have not.  We seek companies that are leaders in the efficient use of water across all industries.

John Streur is President of Portfolio 21 Investments. He has 25 years of experience in the field of investment management. 

While many actors, including the United Nations Environment Program, called for a final agreement with specific targets, Rio + 20’s final agreement, called “The Future We Want,” is largely without teeth.   The agreement lacks enforceable commitments on all biodiversity, poverty elimination, and social equity issues.  For example, specific to oceans and seas, language from the agreement calls for “support to initiatives that address ocean acidification and the impacts of climate change on marine and coastal ecosystems and resources.  In this regard, we reiterate the need to work collectively to prevent further ocean acidification, as well as enhance the resilience of marine ecosystems .  . .We commit to intensify our efforts to meet the 2015 target as agreed to in the Johannesburg Plan of Implementation to maintain or restore stocks to levels that can produce maximum sustainable yield on an urgent basis.”  In effect, the nearly 50 page agreement lacks any firm sustainable development goals but resolves to establish an intergovernmental process to develop goals based on Agenda 21 and the Johannesburg Plan of Implementation.

Outside of formal political negotiations, there were numerous side agreements crafted and unveiled by the large corporate presence at the conference, as well as other partnerships.  Corporate promises earned much media attention, including Microsoft’s announcement that it would become carbon-neutral by 2013.  In another example, Femsa, a Latin American soft-drink bottler, said it would procure 85% of its energy needs in Mexico from renewable energy.  And a group of development banks, led by the Asian Development Bank, the World Bank, and others, will provide more than $175 billion to support sustainable transport in developing countries, including promoting public transportation and bicycle lanes over road and highway construction in the world’s largest cities.  Ban Ki-moon announced more than 100 commitments had been taken by governments and companies under his Sustainable Energy For All initiative.  Specifically, $50 billion was committed to objectives like doubling the share of renewable energy in the global energy mix by 2030.  In sum, the United Nations reported nearly 700 voluntary commitments by stakeholders represented at the conference.

While these commitments may be viewed as a silver lining to the Rio + 20 conference, overall the conference lacked global leadership to direct meaningful change that sets the world on a path of true sustainable development.  Greenpeace said the gathering was a “failure of epic proportions.”  David Suzuki, a geneticist and environmental activist, may have said it best in an interview with Democracy Now, “A meeting like this is doomed to fail because we haven’t left our vested interests outside the door and come together as a single species and agreed what the fundamental needs are for all of humanity. So we’re going to sacrifice the air, the water, the biodiversity all in the sake of human political and economic interest.”

Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.

The amount of fresh water on the planet has remained fairly constant over time as it is continuously recycled through the atmosphere, until very recently.    The earth’s population has exploded and is expected to increase by another 20% to 30% over the next few decades.   This means that competition for clean water is intensifying on an exponential basis.  Unfortunately, humans have proven to be inefficient water users.  According to the United Nations, water use has increased at more than twice the rate of population growth in the last century.

Competition for fresh water is already fierce in the commercial sector.  Agriculture claims the bulk of fresh water worldwide, soaking up around 70%, and industrial uses consume another 22%.  The remaining 8% goes to city and home use.    Furthermore, new research indicates that the world’s unquenchable thirst for fresh water is causing sea levels to rise faster than they otherwise would due to climate change.  Trillions of gallons of water pumped out of underground aquifers, rivers, and lakes are reaching oceans through rivers and evaporation from the soil.

As the fresh water deficit rises, companies that offer viable solutions may spell opportunity for investors.  Many corporations are already working to address the fresh water deficit.  Investors who are aware of the issues may be better informed and better positioned to manage the risk and opportunity of the fresh water deficit.

Tony is Senior Portfolio Manager with Portfolio 21 Investments.  He has 15 years of experience in the field of investment management.

Rio + 20 has two themes:  a green economy in the context of sustainable development and poverty eradication, and the institutional framework for sustainable development.  The conference is focused around these two themes under seven priority areas: jobs, energy, sustainable cities, food security, water, oceans, and disaster readiness.  The Earth Summit in 1992 closed with adoption of Agenda 21, a blueprint to rethink economic growth, advance social equity, and ensure environmental protection.  The expectation is that governments attending Rio + 20 adopt practical measures for implementing sustainable development.

In advance of the summit, the United Nations Environment Program (UNEP) published its fifth Global Environmental Outlook (GEO-5) report.  The report assesses what it considers the 90 most important international sustainability objectives.  GEO-5 indicates that only four have seen substantial progress: eliminating the production and use of ozone-depleting substances, removal of lead from fuel, improving access to clean water, and increasing research to reduce marine pollution.  Some progress was shown in 40 goals and little or no progress was detected for 24 goals, including climate change, fish stocks, desertification, and drought.  According to the UNEP, this is evidence that global treaties need to have quantifiable targets in order to succeed.  As a result, the agency is calling for specific targets at the Rio + 20 Conference.  As the UN Under-Secretary General and UNEP Executive Director Achim Steiner says, “GEO-5 reminds world leaders and nations meeting at Rio + 20 why a decisive and defining transition towards a low-carbon, resource-efficient, job-generating Green Economy is urgently needed.  The scientific evidence, built over decades, is overwhelming and leaves little room for doubt.”

While it is clear much work needs to be done to strengthen our global environment, political realities may impede significant progress.  In May, United Nations Secretary General Ban Ki-moon said that negotiations leading to the Rio + 20 conference had been “painfully slow.”  According to an article in The Guardian, it’s been difficult to engage world leaders.  With President Obama focused on his re-election and European leaders focused on the financial crisis, negotiations have been left to personnel without the political power to make decisions that would result in a breakthrough agreement.  According to the article, Ban Ki-moon said that negotiations were bogged down in narrow national interests, overshadowing the need to set the world on the right track for sustainable growth.  For some, this has painted the Rio + 20 conference with skepticism and it is questioned if significant progress can come of the meetings.

While political realities have the potential to overshadow the conference, there is in fact opportunity.  Governments, the private sector, and civil society have an opening to establish global targets recognizing the ecological limits of the planet and work to establish initiatives and incentives that operate within those boundaries.  Indeed, the long term health and viability of the planet is at stake and it will take true leadership to let go of myopia and create a path that looks beyond the next election cycle or annual earnings report.

Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.

The legislation establishes a high-level climate change commission, a climate fund, and mandatory emissions reporting and registry.  The bill aims for a 30% reduction in emissions growth measured against a “business as usual” pathway by 2020, and 50% by 2050 (below 2000 levels).  These goals will not reduce absolute emissions but instead reduce the rate at which emissions rise.  To achieve these goals, the bill also requests the country’s energy ministers to develop a system of incentives by 2020 that favors the use of renewable energy.  In addition, it establishes goals for increasing electricity generation from renewable sources, including an aspirational target of 35% of electricity generation to come from renewable sources by 2024.

The General Law on Climate Change also phases out fossil fuel subsidies and as the sixth largest oil exporter in the world, cutting fossil fuel subsidies may have been a concern for some.  However, state-owned Petrõleos Mexicanos is the sole oil producer in Mexico and according to the 2011 World Energy Outlook, Mexico’s oil production has declined over the last decade and is projected to continue to decline due to the slow pace of new developments.  Some legislators see promise in the opportunity for reducing development and reliance on fossil fuels.  As quoted by the BBC, Porfirio Munoz Ledo of the center-left Democratic Revolution Party and chair of the Foreign Affairs Commission said, “Mexico is aware this is the end of the oil era, so we need to implement this fiscal reform – and if we go through it, we’ll be able to do without this oil.”

Finally, the bill requires international financial support to deliver its goals, as is mandated in the United Nations climate convention.  The Cancun summit agreed to establish an international Green Climate Fund that is supposed to provide much of that support.  However, details of the Fund have yet to be finalized and it is a long way from receiving the promised funds.  Certainly the limited growth of the global economy has reduced the coffers of all nations, likely making them less willing to submit promised monies to such funds.  Whether Mexico would get the financial support it plans on is questionable.  Beyond financial support, some worry that enforcing the bill may prove to be difficult.

While all laws face implementation challenges, the fact that Mexican legislators created the political will to pass comprehensive climate change legislation is both encouraging and a model the U.S. will hopefully follow in the short term.

Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.

The panelists critiqued the general trend toward short-term investing; for example, in the 1980s the length of an average stock investment was five years, whereas today it is only five months.  In another example, a panelist recounted attending a recent conference where Chief Financial Officers from various corporations were queried about their investment horizons.  The majority said their horizon is less than 1 year, some less than 1 quarter.  As investors have become more focused on the short term, the challenge is to develop a system that rewards longer-term thinking while incorporating broader environmental and social issues into investment decision making.

Areas for improvement suggested by the panelists include clarifying the legal framework for fiduciary responsibility. Most often, fiduciary responsibility focuses strictly on financial attributes without consideration of environmental or social concerns.  We believe fiduciary responsibility should incorporate environmental and social issues in order to comprehensively evaluate both risk and opportunity within sectors and companies.  Traditional investment analysis underestimates the long-term opportunities and risks associated with ecological limits.  As long term investors, we conduct fundamental research that combines traditional investment information with environmental research.  This process identifies companies that are innovative, competitive, and that are creatively responding to ecological limits.

Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.

Environmental investing is not something that can be done from afar, or by reading a company’s annual report or website, nor by screening some database. For environmental investors, there is no herd to follow. It requires in-depth fundamental research, hands-on engagement with companies and many other sources of information, combined with experience and independent thinking. This is trailblazing work, requiring courage and creativity. That’s what Portfolio 21 Investments does and that’s why I am so enthusiastic about our future.

The need for excellence in environmental investing exists because many of the environmental costs and risks being created by companies may not be accurately reflected in stock prices. These costs have historically been pushed off onto society at large, even though they rightly belong to the companies that create them. At some point, these costs may come back to the companies that actually took the risks, and that can impact shareholders.  As March is the one-year anniversary of the tsunami that triggered a disaster waiting to happen at Tokyo Electric Power Company’s (TEPCO) Fukushima reactor, I need not reach for examples.  Good investment analysts who choose to do the work required can assess these risks and factor them into investment decisions.

To me, TEPCO illustrates that the risks to stockholders associated with a company’s environmental interaction may not currently be reflected in its stock or bond price. It literally took a tsunami and a nuclear meltdown for investors to react to the risks that were all there prior to the disaster.  And in the year since the disaster at Fukushima TEPCO stock has declined by over 88%.

But environmental investing is not all about risk avoidance. There are many companies doing excellent work and moving their products and business models forward in order to thrive in an ecologically constrained world. These are the companies that Portfolio 21’s investment strategy seeks out worldwide—the leaders and innovators.

That is what drew me into the field, my perception of the needs and the opportunities. Portfolio 21 Investments’ unique position as the leading environmental investor is what drew us together. One other point, I do hope to leave the world a better place in whatever large or small way possible. That is, of course, one other characteristic that I share with each of the people at Portfolio 21 Investments and I suspect with all of you reading this blog post.  Perhaps that will be the topic of a future posting…

The information presented above nor any opinion expressed shall be construed as an offer to sell or a solicitation to buy the security.

John Streur is non-executive Chairman of Portfolio 21 Investments. He has 25 years experience in the field of investment management. 

GABV member banks favor a triple bottom line approach and are committed to serving their respective clients and communities.  The group emphasizes long-term partnerships, as well as transparency and good governance.  In contrast with the “too big to fail” banks, GABV banks are focused on core banking activities, gathering deposits, and making good loans.  At Portfolio 21 Investments we agree that the GABV model is an important foundation for a successful bank in a future with increasing environmental and social constraints.  Furthermore, it is becoming apparent that GABV member banks often have better growth prospects, and tend to be better capitalized and generate higher returns on assets.

However, raising capital to foster bank development and growth is still a major hurdle for most GABV members.  Most equity investors overemphasize earnings and asset growth at the expense of externalities.   These externalities present risks that are often ignored by “traditional” banks.  GABV constituents have attempted to address many of these external environmental, social, and governance risks with a new banking model.  We expect to see other banks around the world increasingly adopt a similar philosophy as previously ignored risks emerge and become more widely known.  Investor confidence and increased funding opportunities should potentially follow suit.

For more information on the Global Alliance for Banking on Values visit www.gabv.org.

And congratulations to New Resource Bank for its recent Best for the World Award from B Corporation!

Tony is Senior Portfolio Manager with Portfolio 21 Investments.  He has 15 years of experience in the field of investment management.

The information presented above nor any opinion expressed shall be construed as an offer to sell or a solicitation to buy the security.

Raising Elijah describes the domestic routines of family life with young children and how they are linked to public health issues.  The book explores a range of issues, from increased exposure to chemicals like phthalates, which have been linked to asthma, to the toxicity of play structures built from pressure treated wood, which have been shown to leach arsenic.  In the U.S., there are over 80,000 chemicals on the market and little is known about their effects on human health and the environment.  In addition, less is known about the safety of these chemicals in combination with each other.  Steingraber focuses less on pointing fingers and more on a broken system that fails to regulate dangerous chemicals:  “…give me federal regulations that assess chemicals for their ability to alter puberty before they are allowed access to the marketplace…give me chemical reform based on the precautionary principle.” Her commitment to creating regulations that protect consumers can be seen as an example of environmental justice.  Indeed, consumers with less knowledge and/or financial ability to purchase alternatives should not have to unknowingly expose themselves and their children to toxic chemicals.

Alternatives do exist, but are not yet mandatory or mainstream.  Voluntary programs for business such as the EPA’s Design for the Environment  (DfE) can be utilized in concert with the precautionary principal to develop chemicals and mix chemical formulas with less environmental impact.  DfE focuses on chemistry and identifies safer alternatives, while the precautionary principle is a form of risk analysis that aims to ensure a higher level of environmental protection.  Used wisely, programs and guidelines such as these can help break a legacy of toxicity and help to usher in an era of responsible environmental design.

There is increasing demand for safer chemical products and some companies are responding.  We are encouraged to see companies adopt policies that prohibit the use of substances listed as persistent, bioaccumulative, or highly toxic; potential carcinogens; mutagens; or reproductive toxins.   In our world of increasing population and declining ecosystem services, we believe chemical companies that formulate non-toxic substances, facilitate the reduction and reuse of chemicals, and create products that have environmental benefits for the end user will have a competitive advantage.

Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.

Gilding believes “…that man has the ability to commit to huge change when there is no alternative.”  No individual can predict what will trigger the “Great Disruption,” when it will take place, or what it will look like.  Gilding makes the case that the global response could be strikingly similar to that inspired by Winston Churchill and others in the face of World War II—collaboration, sacrifice, and an astounding commitment to wartime necessities.

As investors, we expect the Great Disruption to trigger declines in consumer spending and discretionary goods, waves of innovation, and a unified drive aimed at the conservation of resources.  It was an honor to discuss these themes with Paul in person and to hear his perspective on how some of these trends may develop.

Have you read The Great Disruption?  Did you find its message frightening, exhilarating, or something in between?

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 8 years of environmental and social investing research experience.