Water scarcity, and the societal risks it poses, is one of the primary challenges faced by the world today. Over two billion people still live in countries experiencing high water stress, while four billion people experience severe water scarcity for at least one month a year. Poor water quality exacerbates the issue, with 80% of waste water globally being returned to the environment untreated, while 4.5 billion people still lack access to safely managed sanitation services.

Urs Rohner, Chairman of the Board of Directors of Credit Suisse Group and Chairman of the Credit Suisse Research Institute, commented: “It has become clear that water scarcity is and will continue to be a significant issue facing the world in years to come. The numbers are stark and a concerted global effort is necessary. Water stress and climate change are inextricably linked, given the related disruption in rainfall patterns.”

Eugène Klerk, Head of Global ESG & Thematic Research at Credit Suisse, commented: “Water scarcity is one of the key areas of focus as part of the UN’s Sustainable Development Goals (SDGs) and addressing the consequences of the problem is central to six of these SDGs. The social and economic benefits are clear, but meeting the aims of the SDGs comes at a cost. The public and private sector both have a substantial role in developing the necessary infrastructure and new technologies.”

Water demand: a secular challenge
With total water consumption set to see structural growth for decades to come, the report finds three factors driving water demand:

(1)   Population growth – global population is expected to reach ten billion by 2050 with global water usage expected to reach 5.3 trillion m³ by 2050, up from 3.7 trillion m³ currently.

(2)   Urbanization – the long-term trend toward a more urban world is likely to improve the quality of water infrastructure. Of all water delivered to urban areas each year, most is used in and around our homes, with residential water use accounting for 64% of total urban use.

(3)   The impact of the rise of the emerging middle class – rising wealth in emerging economies is  likely to lead to higher per-capita food and calorie intake as higher incomes allow greater expenditure on food, as well as increased consumption of water-intensive non-food products.

Water supply: a static problem
Water supply, measured using renewable internal freshwater resources, excluding external resources, is typically very static. Part of the reason why the issue of water scarcity has not received the necessary attention from the global community to date might be because water scarcity is perceived as a more local issue than climate change. Although water scarcity and stress differ by country, a global approach is needed.

Given the regional nature of the water-scarcity problem, it is not surprising to find a number of countries facing high levels of stress just north of the equator, as renewable resources are low in these areas, given climate and geography. Notably, North Africa and the Middle Eastern countries, along with some Asian countries such as India, are all facing high stress levels.

Climate change and water stress

• Water stress and climate change are intrinsically linked – not least because disruption to rainfall patterns is a direct, incontrovertible result of climate change. The implications are two-fold. One is an immediate disruption: increased droughts, floods and temperatures. The other is a more permanent, systemic effect where increases in water vapor in the atmosphere increase heavy downpours and, ultimately, soil erosion.
• The impact of this is that emerging markets and low-income OECD countries are disproportionately affected as they are more exposed to extreme weather events.
• 2019 alone saw a number of extreme weather events from flooding, drought, heat, cyclones/hurricanes/typhoons and fires.
• It is important to note that actual water availability is impacted by projected increases in both flooding and drought going forward. Increased flooding puts up to 1.6 billion people at risk by 2050. However, compared to the sporadic impacts of flooding, drought is a chronic, long-term issue, and arguably the most pernicious result of climate change.

Water scarcity and geo-political stress
As water becomes scarcer and demand continues to grow, how water resources are shared between countries will become more contentious. While limited numbers of conflicts have resulted from water issues in the past, due to the supply and demand imbalances, tension between and within countries over water security issues is expected to grow.

Investment requirements & challenges
Water faces a mismatch between the daunting infrastructure investment requirements and the capital costs entailed, with the current ability to price water being significantly constrained and regulated. Estimates of the required investment in global water and sanitation infrastructure by 2030 vary considerably from USD 7.5 trillion (McKinsey 2016) to USD 23.1 trillion (New Climate Economy Report, 2014). An OECD technical note reviewing varying forecasts, estimates a USD 13.6 trillion cumulative investment requirement (2015 USD, 2016–2030).

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About the Credit Suisse Research Institute
The Credit Suisse Research Institute is Credit Suisse's in-house think tank. The Institute was established in the aftermath of the 2008 financial crisis with the objective of studying long-term economic developments, which have – or promise to have – a global impact within and beyond the financial services. Further information about the Credit Suisse Research Institute can be found at www.credit-suisse.com/researchinstitute.