Invest in SDG 6: Clean Water & Sanitation with ESG ETFs

The United Nations Sustainable Development Goals (SDGs) are 17 goals that all UN Member nations have agreed to achieve by 2030. They set out an ambitious mission to eradicate issues that affect our society and environment. Clean Water and Sanitation has a central place in UN's agenda through its SDG #6 entitled “Ensure availability and sustainable management of water and sanitation for all”, and underpinned by 8 ambitious targets. In this article we highlight how you can contribute to UN SDG Goal 6: Clean Water and Sanitation with ESG Exchange-Traded Funds (ETFs).

17 SDGs for a better future

The Sustainable Development Goals (SDGs) are 17 goals with 169 targets set by the United Nations in 2015 as a global initiative to tackle issues that affect humans and the environment we live in, with the hope of achieving tremendous progress by 2030.

The 17 sustainable development goals (SDGs) to transform our world:

1. No Poverty
2. Zero Hunger
3. Good Health and Well-being
4. Quality Education
5. Gender Equality
6. Clean Water and Sanitation
7. Affordable and Clean Energy
8. Decent Work and Economic Growth
9. Industry, Innovation and Infrastructure
10. Reduced Inequality
11. Sustainable Cities and Communities
12. Responsible Consumption and Production
13. Climate Action
14. Life Below Water
15. Life on Land
16. Peace and Justice Strong Institutions
17. Partnerships to achieve the Goal

Each goal has several targets and is measured quantitatively by indicators provided by private and public entities. The creativity, knowhow, technology, and financial resources from all stakeholders are necessary to achieve the SDGs in every context. The beauty of these goals is their interrelation, meaning that action in one area will affect outcomes in others. The development of those goals must balance social, economic and environmental sustainability.

What is UN SDG GOAL #6: Clean Water and Sanitation?

Clean water and sanitation are vital to our health, communities, and economy, yet billions of people today have little or no access to these necessities. Over the past century, global water demand rose twice as fast as population growth. In addition to water stress, countries and regions suffer from water pollution, degraded water ecosystems, water scarcity caused by climate change, and conflicts related to transboundary waters. At the current trend, the world is not on track to achieve Goal 6. Nations must join forces to develop a sustainable water management strategy that can accelerate progress towards that goal.

Today, 2 billion people are deprived of safe drinking-water, 3.6 billion acceptable sanitation and 2.3 billion basic hygiene services in 2020. The third of the world's population also lack basic handwashing facilities with soap and water at home, leaving them vulnerable, especially during the COVID-19 Pandemic.

Among the 42 countries and territories reporting on total wastewater generation and treatment in 2015, only 32% of wastewater flows were subject to some form of treatment. An assessment of rivers, lakes and aquifers of 89 countries and territories in 2020 indicates that the water quality of 30% of the water bodies assessed is bad. Therefore, efforts to clean these water bodies from pollution must be initiated.

As the 6th UN Sustainable goal, "Clean Water and Sanitation" has 8 targets set for completion by 2030:

1.    Provide access to clean and affordable water for all.

2.   Provide access to sanitation and hygiene, end public defecation and focus on women and vulnerable people needs.

3.   Reduce pollution, improve water quality, halve the proportion of untreated wastewater and promote recycling.

4.   Promote efficient use of water and ensure sustainable supply of freshwater to avoid water scarcity.

5.   Focusing on transboundary cooperation to have an integrated water resources management at all levels.

6.   Protect and restore water-related ecosystems (forests, wetlands, aquifers etc...)

7.   Providing international support to development countries in water and water and sanitation projects.

8.   Promote the participation of local communities in improving water and sanitation management.

According to a 2017 World Bank Report, $114 billion a year between 2017 and 2030 is required to deliver universal clean water and sanitation (targets 6.1 and 6.2) helping to reduce water-related disease and deaths, while spurring economic growth. The United Nations along with other stakeholders have put together hundreds of actions to achieve these targets and have defined 11 statistical indicators by which the world aims to track whether these targets are achieved.

Investors can support Clean Water and Sanitation with ESG ETFs

Today, impact investing has become the norm, with billions of dollars flooding the market in adequately screened investments, focusing on entities that align their operations with SDG and ESG initiatives (Environmental, Social, Governance). Corporate Social Responsibility departments (CSR) went from being a cost burden to an existential necessity that represent employees and consumers values.

The change in investors' mindsets has given birth to mutual funds and ETFs that provide exposure to securities that work towards achieving ESG or SDG goals. It allows them to invest in opportunities that can provide wealth accumulation while making an impact.

List of ESG ETFs promoting Clean Water and Sanitation

Trackinsight analyzes the fact sheets and other publicly available information of all ETFs in the ESG universe. The information is screened for statements that show an explicit tilt towards specific Sustainable Development Goals.

In relation to the "Clean Water and Sanitation" goal, Trackinsight identifies 12 ETFs totaling $10.15 billion (sorted by Assets Under Management):

1. iShares Global Water UCITS ETF (IH20): $2,671 million
2. Invesco Water Resources ETF (PHO): $2,055.2 million
3. Lyxor MSCI Water ESG Filtered (DR) UCITS ETF (LYWAT): $1,513.3 million
4. First Trust ISE Water Index Fund (FIW): $1,491 million
5. Invesco S&P Global Water Index ETF (CGW): $1,252.6 million
6. Invesco Global Water ETF (PIO): $344.9 million
7. L&G Clean Water UCITS ETF (WMLC): $343.59 million
8. iShares Global Water Index ETF (CWW): $280 million
9. VanEck Vectors Environmental Services ETF (EVX): $79.2 million
10. Ecofin Global Water ESG Fund (EBLU): $61.4 million
11. Lyxor PEA Eau (MSCI Water) UCITS ETF (AWAT): $49.93 million
12. Global X Clean Water ETF (AQWA): $8.99 million

These ETFs invest in companies that promote advancing the provision of clean water through industrial water treatment, storage and distribution infrastructure, as well as purification and efficiency strategies, among other activities.

The iShares Global Water UCITS ETF or IH2O, is the biggest ETF in that space with more than $2.6 billion in assets. The fund has two ETF share classes (distributing and accumulating). The fund tracks the S&P Global Water Index and invests in 50 of the largest global companies engaged in water related businesses.

In terms of country exposure, IH2O is invested in the United States (52.7%), United Kingdom (15.37%), France (8.74%) and Switzerland (7.46%) among other. In terms of sector exposure, 90% of the investments are allocated to Industrials (49.23%) and Utilities (40.92%). The top holdings include:

1. American Water Works (9.16%): provides services such as water line protection, sewer line protection, an in-home plumbing emergency program among other services.
2. Xylem (8.88%): American technology provider, in public utility, residential, commercial, agricultural and industrial settings.
3. Veolia Environment (5.17%): French transnational company with activities in water management, waste management and energy services, traditionally managed by public authorities.
4. Halma (5.06%): British global group of safety equipment companies that makes products for hazard detection and life protection.
5. Geberit (5.00%): Swiss multinational group specialized in manufacturing and supplying sanitary parts and related systems.

The distributing version of the fund (biggest and oldest) trades on multiple European stock exchanges including the London Stock Exchange, SIX Swiss Exchange, Deutsche Boerse Xetra, Borsa Italiana and Bolsa Institucional de Valores, and charges 0.65% in annual fees. Since inception on March 16th, 2007, IH2O has returned a cumulative 256% and an annualized 9.08% (as of October 31st, 2021)

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