The Credit Suisse Research Institute (CSRI) has today published a comprehensive study on water scarcity and the key challenges that lie ahead, calling for definitive action to be taken on a coordinated global basis.

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. The United Nations says that water use has more than tripled since the 1950s, growing by more than twice the rate of population growth over the last century.

Key findings set out in the report - Water scarcity - Addressing the key challenges - include:

• By 2050, up to 5.7 billion people around the globe will live in areas that are water-scarce, with the overall majority in developing countries.
• Population growth – global population is expected to reach ten million by 2050 with global water usage expected to reach 5.3 trillion m³ by 2050, up from 3.7 trillion m³ currently.
• 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 the home, with residential water use accounting for 64% of total urban use.
• Impact of the rise of the emerging middle class – rising wealth in emerging economies is likely to lead to a “developed consumer approach” and 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. This would put significant incremental stress on already challenged freshwater availability.
• The number of people at risk from flooding will have increased to 1.6 billion from 1.2 billion today.
• Four out of every five people impacted by sea-level rise will likely live in East and Southeast Asia.

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 report says. 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.

According to the researchers, it is important to note that actual water availability is impacted by projected increases in both flooding and drought going forward. However, compared to the sporadic impacts of flooding, drought is a chronic, long-term issue, and “arguably the most pernicious result of climate change,” the report says.

On water availability and how water resources are shared between countries, the researchers say that due to supply and demand imbalances, they also expect these issues to become more contentious and tension between and within countries over water security issues to grow.

Growing risk from flooding

The report also highlights the growing risks from increased flooding events, pointing out that about four out of every five people impacted by sea-level rise by 2050 will live in East or Southeast Asia.

US cities, especially those on the East and Gulf coasts, are likewise vulnerable, with more than 90 US coastal cities already experiencing chronic flooding – a number that is expected to double by 2030.

About three-quarters of all European cities will also be affected by rising sea levels, especially in the Netherlands, Spain and Italy.

According to the report, so-called “delta cities” are already bearing the brunt of rising seas. More than 340 million people live in deltas like Dhaka, Guangzhou, Ho Chi Minh City, Hong Kong, Manila, Melbourne, Miami, New Orleans, New York, Rotterdam, Tokyo and Venice.

The report is also warning that new modelling projects a much more severe outcome from rising sea levels, saying that the most recent global scientific study, incorporating new coastline elevation data, has tripled estimates of global vulnerability to sea-level rise and coastal flooding.

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.”

Investment requirements & challenges

Commenting on the funding requirements and solutions needed, the report says that both the lack of proper water infrastructure across developing countries requires substantial investment, alongside existing infrastructure in developed countries which is often old and in need of replacement or upgrading too.

The report sets out a range of published estimates for the levels of investment needed, including:

• OECD - USD 13.6 trillion needed between 2016 and 2030
• World Bank – to achieve  SDG targets 6.1 and 6.2 alone will require USD 114 billion per year.
• McKinsey 2016 USD 7.5 trillion needed by 2030
• New Climate Economy Report2014 USD 23.1 trillion needed by 2030

The researchers suggest that water faces a mismatch between “daunting infrastructure investment requirements” and the capital costs entailed, with the current ability to price water being significantly constrained and regulated.

According to the report, water infrastructure in emerging markets has been heavily underinvested and solely reliant on public finance to drive improvements.  "To change this trend, clearly the private sector needs incentives to invest,” the report says.

The researchers says that there needs to be a shift in the current orthodoxy of pricing to fund these projects and the “vast but essential sums” required necessitate a growing role for private sector investment. This will include collaborative public-private partnerships (PPPs), as well as innovative financing arrangements that match capital markets with specific projects through green and blue bonds.

Eugène Klerk, Head of Global ESG & Thematic Research at Credit Suisse, added:

“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.”

Click here to read the report in full