By Mark Seruya

With all the snow and rain we received this winter, and after the storms and flooding that hit last fall, it is hard to imagine that most of the United States is currently experiencing moderate to severe drought conditions. It is even more difficult to conceive that, for much of the world, water is in increasingly short supply.

Investors, like everyone, are aware that weather runs in cycles and a place that is wet today could well be dry for the next several years. Potable water, clearly, is one of the major difficulties facing the human race, now and for generations to come.  As the world population explodes, and third world countries develop, demand for clean water will become an ever more serious issue.

How do we deliver clean drinking water to human populations across the globe?  How do we provide water to irrigate crops in once verdant areas that now are experiencing drought?  And, in the United States in particular, at what point will we be forced to invest billions of dollars to upgrade and expand our aging water infrastructure?

The good news is that companies worldwide are making great progress on exactly these issues.  For investors, therefore, worthy of consideration are water utility companies, construction companies that build or rebuild water infrastructure, engineering companies and a host of others related to water conservation and even companies that make the needed equipment.

The world population recently passed the seven billion mark and is climbing steadily; frighteningly so according to some who worry that food, fuel and water supplies will soon be far surpassed by demand.

Given these circumstances and the rising incidences of drought, now in areas across the U.S. in addition to other continents, it is clear that methods to obtain and distribute water should be a major societal priority.  Perhaps something can be learned from Israel in this regard.

In Israel, the Jewish National Fund (JNF) has shifted its emphasis from tree planting to a range of environmental issues that center around water use.  With the country now in its eighth year of drought, and with increased demand from a rapidly growing population, Israel’s water deficit is at an all-time high.  Its few major water bodies, including the Kinneret, are at critically low levels.

Israel’s water deficit of two billion cubic meters is equal to 2,000 Empire State Buildings full of water.

JNF has worked for two decades to help alleviate Israel’s water shortage.  Some of its strategies include the construction of water reservoirs, recycling, developing alternate water sources, and stream and aquifer restoration. JNF has constructed more than 220 reservoirs throughout Israel that serve as the final stage in the water treatment process and hold a total of 66 billion gallons of recycled water and flood runoff for agricultural use.

According to JNF, 75 percent of the sewage water in Israel is recycled and reused – the highest rate in the world.  Spain comes in second, recycling just 13 percent of its wastewater, and U.S. figures are well under 10 percent.

Domestically, the American Water Works Association says that repairing or upgrading America’s water system will cost around $1 trillion through the year 2035. The cost of replacing aging American water system facilities is likely to escalate from $13 billion in 2010 to $30 billion in 2040 – and that does not include the cost of expansion, which the Association says could add at least $20 billion to the annual expenditures.

Companies that make machinery and filtration systems for improved wastewater management and irrigation systems not only are attractive for investments themselves, they will create demand that boosts spin-off industries such as manufacturers of piping, valves, motors, pumps, gaskets, o-rings and the specialized tools needed to install and service them. Desalination will likely become a more attractive option as advancements in technology reduce its cost and increase its productivity.  Although desalination, even with a huge increase in capacity, will be a small factor in the overall issue, it may nonetheless provide opportunity for investment.

The earth is not running out of water. It has plenty.  But fresh water, in the right places at the right time, is another issue.

Mark Seruya is managing director with the Global Wealth Management Division of Morgan Stanley Wealth Management, with offices in Manhattan and Hartford.  

The information contained in this article is not a solicitation to purchase or sell investments. The views expressed are those of the author and may not reflect the views of Morgan Stanley or its affiliates.