Blue Gold: Tackling Water Challenges through Innovation and Investment

By Karin Bony-Merad, Head of Sustainable Finance & Water Shift program lead and Laurent Chabot, Co-Head Infrastructure Finance Paris.

Global Water Challenges and Regulatory Responses

The significant increase in global water consumption for agriculture and industrial purposes has put immense pressure on freshwater quantity and quality. Water availability has recently crossed one of the planetary boundaries, entering a "zone of uncertainty". This situation has heightened awareness of water-related challenges, prompting the development of new regulations and policies. Industries heavily reliant on water, such as mining, construction, thermal power, textile production, and pharmaceuticals, are now investing in more efficient water management practices. The mobilization of private capital is crucial in facilitating these investments, with innovative financing solutions like blue bonds emerging to support these efforts.

As water challenges escalate, regulations and policies targeting water use in industries are proliferating (for instance revised Urban Wastewater Treatment Directive in the EU, PFAS regulations in the US, mandatory water recycling in Singapore...). Financial institutions, particularly in the EU, are now mandated by regulations’ guidelines to identify and manage environmental, social, and governance (ESG) risks, including those related to climate, nature, and water. These institutions are leveraging their expertise in climate-related financial risks to analyze their clients' disclosures, targets, capital expenditures, and transition plans.

Corporate Water Management Strategies

In this context, companies with significant impacts on water resources are taking proactive measures to mitigate potential risks. Those dependent on water face regulatory, operational, and reputational risks, prompting them to enhance their water management strategies. This includes: 

• Conducting thorough risk assessments and setting water related targets (e.g. GSK setting targets validated by SBTN) 

• Integrating water risks into financial metrics and scenario analysis (e.g. Michelin setting internal water pricing) 

• Investing in advanced water technologies and innovative solutions. 

Building on the knowledge already acquired from climate and financed emissions, Societe Generale has recently started to actively engage with clients in water-sensitive sectors on their water-related risks and opportunities. Investment in water treatment is critical for addressing these challenges. Solutions such as water reuse, digital water solutions and desalination are gaining traction. Notable projects financed by Societe Generale include water treatment projects in the steel manufacturing and copper mining sectors. For instance, Stegra entered into a Private-to-Private Partnership with John Laing for a water treatment plant, a critical ancillary infrastructure required to operate what will be the world’s first large-scale green steel plant in Sweden. Another example, the Aconcagua desalination plant in Chile will produce fresh water for various uses, including for a copper mining operation in Chile, addressing the restricted access to water for industrial use in the region and leaving continental water supply for local communities. 

The Role of Private Capital in Water Infrastructure Investment

Private capital is poised to play a vital role in supporting these transformative changes and enabling investments in water infrastructure. According to the World Bank, an estimated $6.7 billion in water-related infrastructure will be required by 2030, with projections indicating that this figure could rise to $22.6 trillion by 2050. This underscores the urgent need for large, coordinated flows of public and private capital to address decades of underinvestment in the water sector.

Moreover, water-specialized companies are actively pursuing investment opportunities in the market, evidenced by a surge in mergers and acquisitions (M&A) activity: 44 transactions (from water companies) were identified between 2018 and 2024, 29 of them for water treatment technologies*. This trend reflects a growing recognition of the importance of sustainable water management and the potential for profitable investments in this critical sector.

In conclusion, the intersection of regulatory pressures, corporate responsibility, and innovative financing solutions is driving a significant shift in how industries manage water resources. As the global demand for water continues to rise, the collaboration between private capital and water-intensive industries will be essential in developing sustainable practices and ensuring the long-term viability of freshwater resources.