This article is the third in a three part-series on water management, water use and water demand. Part 1 was published on December 9, 2024, and part 2 was published on December 12, 2024
Investment Insights • Sustainability
3 min read
Rising water demand and its far-reaching implications
Water is the essence of life, and demand for it is soaring globally at an unprecedented rate. As societies develop and economies expand, the ways we use and consume water are evolving, presenting both opportunities and challenges. This article delves into the critical aspects of water demand and use, highlighting key drivers, sectoral impacts and the emerging concerns surrounding technological advancements such as Artificial Intelligence (AI).
Melanie Beyeler
Over the past century, global demand for freshwater has risen sixfold, driven by factors such as population growth, economic development and changing consumption patterns.1 Currently, approximately 18% of the world’s renewable water resources are being withdrawn, a figure that masks significant regional disparities.2 For instance, some regions experience high water stress, withdrawing a substantial portion of their available resources, while others use a much smaller fraction.
Agriculture is the largest consumer, accounting for about 70% of global freshwater use and up to 95% in some developing countries where crop irrigation is essential for food security.4 Crops like wheat and maize are especially water intensive. Industrial water use, while also growing, has been moderated by recent efficiency improvements and makes up around 20% of global freshwater withdrawals, while household use comprises the remaining 10%.3 Still, municipal water demand rose by 3% from 2010 to 2018, largely due to expanding urban populations and improved infrastructure in emerging economies.5
Population growth has a less pronounced impact on global water demand than socio-economic factors. Many of the fastest-growing populations reside in regions with low per capita water use, such as parts of Sub-Saharan Africa.3 As a result, the increase in water demand is more closely tied to economic activities and urbanisation than to population growth alone.
Forecasting future water demand reveals a wide range of potential outcomes. Projections suggest a 20% to 55% increase in global water use by 2050. Consensus indicates rising demand in industry, energy, and municipal sectors, driven by ongoing industrialisation and infrastructure development in low-income and emerging economies. However, the exact trajectory depends on factors such as technological advancements, policy interventions, and shifts in consumer behaviour.
AI and water consumption
One area where technology intersects with water demand is in the rise of Artificial Intelligence (AI) and its infrastructure requirements. While AI can help streamline processes and contribute to water-saving innovations, it also introduces new water demands. Data centres, essential for AI, consume large amounts of water for cooling and power generation, with global water use rising annually by 6% from 2017 to 2022.6
In water-scarce regions, increasing demand from data centres further constrains already limited resources. For example, nearly half of China’s data centre facilities are located in areas with severe water scarcity, intensifying competition for water among various sectors.7 Tackling this issue requires innovative solutions, such as alternative water sources, improved recycling methods and the more efficient management of data centres to mitigate their water footprint and ease the strain on local supply.
Towards sustainable water use
Managing rising water demand requires a balanced and multi-faceted approach. Advanced irrigation techniques to boost water-use efficiency in agriculture, increased recycling within industrial and municipal sectors, and robust water management policies are all essential strategies. The tech industry also has a critical role to play in reducing the water intensity of data centres, transitioning to renewable energy sources and investing in water replenishment projects.
Water demand is a complex challenge influenced by economic growth, shifting consumption patterns and rapid technological advancements. While agriculture remains the largest consumer, expanding industries and technologies like AI are adding new layers of demand. Adopting sustainable practices and innovative solutions will be essential to keep water demand in check. As populations continue to urbanise and economies grow, balancing water use with conservation efforts will be vital to safeguarding this invaluable resource for future generations.
1 https://ourworldindata.org/water-use-stress#:~:text=A%20growing%20global%20population%20and,%2C%20industry%2C%20and%20municipal%20uses.
2 https://data.worldbank.org/indicator/ER.H2O.FWTL.K3
3 UNESCO, The United Nations World Water Development Report 2024
4 https://data.worldbank.org/indicator/ER.H2O.FWAG.ZS
5 https://data.apps.fao.org/catalog/dataset/829bade5-1bb8-4154-aed3-088e5a3b8d00/resource/536aa769-4a2d-4a59-8552-7fb2d7c14fcb/download/aquastat-water-withdrawal-by-sector-environmental-flow-requirements.csv
6 https://www.bluefieldresearch.com/behind-the-data-unveiling-the-water-footprint-of-artificial-intelligence/#:~:text=As%20a%20result%20of%20the,fastest%2Dgrowing%20industrial%20water%20verticals.
7 https://chinawaterrisk.org/resources/analysis-reviews/china-ict-running-dry-the-rise-of-ai-climate-risks-amplify-existing-water-risks-faced-by-thirsty-data-centres/
Melanie Beyeler
Melanie joined EFGAM Switzerland in August 2017 and is responsible for the Climate Transition strategy. Previously she held a variety of roles at Credit Suisse including equity institutional sales and client portfolio manager.
Melanie holds a Masters HSG in Banking and Finance from the University of St. Gallen and was awarded the CFA UK Certificate in Climate and Investing. In addition, she has successfully completed the “Sustainable Finance” program at the University of Cambridge and the “Business Sustainability Strategy” program at MIT Sloan School of Management.