Water: A Constraint on Industrial Growth?

Steve Kloos, Partner, Burnt Island Ventures
Megan Gerryts, Lead, Water Innovation, World Economic Forum

This whitepaper was written as a companion to the Ripple roundtable of the same name, held at The Drop conference in 2026.

In brief

Water is foundationally important to life, society, and the economy. The water sector is a $1.6T/yr industry that represents about 1.5% of global GDP, and water underpins roughly 60% of global GDP as an input to nearly every other sector.

When water is abundant, accessible, and pure, we blissfully live our lives with little consideration of the fundamental molecule. But water is increasingly under stress. Climate change is affecting rainfall patterns, resulting in more droughts and more floods. Pollutants are on the rise while industrial demands are increasing faster than ever before. And communities are increasingly concerned about their water resources being exploited for corporate gain.

So, if water is vital for industry and if water is becoming scarce and uncertain, will water be a constraint on industrial growth? Our short answer is yes in some places and for some projects, but mostly no, because the value of water to industry is rising while innovation lowers the cost of solving for it.

01 · Three converging factors that are creating tension

1) Water Stress. Climate change has already disrupted the water cycle and as GHGs rise the frequency and intensity of both droughts and floods will further increase. The hydrology is changing, and the future is uncertain. Many places in the world are experiencing aridification rather than temporary droughts.

For example, the Colorado River Basin’s flow looks to be permanently altered, with river flow this century down 20%, and river flow this year may come in at less than half of the 16.5 million acre-feet (MAF) allocated annually to the Upper Basin, Lower Basin, and to Mexico – while the two large water storage reservoirs, lakes Mead and Powell, which in total hold about four years of river flow, are at all-time lows and both are near the point where they won’t be able to generate hydropower or be able to buffer water supply and demand.

Europe has felt it, too. Drought across Europe started in spring and worsened through July and August, with the Rhine and the Danube at record low levels simultaneously. The Netherlands has been in an official water shortage since mid-July. River-cooled nuclear power has been impacted in France, Hungary, and Romania, interestingly because of discharge temperature limits – and low water levels have hindered barge traffic, which has impacted the shipment of goods from producers and to customers.

Extreme rain events are also causing havoc, stressing stormwater infrastructure and leading to loss of property and life.

2) Increased economic activity. Several factors are driving an increase in water demand from industry, including: a) the AI boom, which not only requires a massive amount of data centers with cooling needs but also a boom in chip production that is water intensive and a demand for new power generation; b) other industrial sectors are on the rise, including pharmaceuticals, where growth in GLP-1s is driving an increase in water use, and in mining & metals, for EVs, electronics, and servers; c) de-globalization and onshoring of the production of goods and energy, which is driving an increase in construction of new industrial and power generation facilities, which are often quite thirsty.

3) Increased societal awareness and resistance. Communities are becoming more aware and active in protecting their water. The buildout of AI infrastructure has communities asking not just how much water a plant will consume but also what the impacts are to the local watershed and aquifers. Data centers have become a focal point, even those that have modest water consumption, partly because transparency is so poor. The perception is that a small number of very large companies are taking local water and power, forcing higher rates on the community while stripping them of precious resources and harming the environment, and that perception is now blocking projects. Gallup found this year that 71% of Americans would oppose an AI data center in their area, with 48% strongly opposed. One European tracker counted more than 70 data center projects rejected or restricted in the first half of 2026. Water and energy have become election issues. Companies now require the social license to operate, yet few are transparent about where their water comes from, what it does to the local basin, or what they are putting back. Their opacity works against them, creating demand for measurement, disclosure, and independently verified water accounting.

But social resistance is overcomeable if done right. Singapore, Orange County, CA, and Big Spring, Texas all successfully implemented potable wastewater reuse because they explained the technology, stated the treatment standard, and were transparent throughout the process. Where that groundwork was not laid first, projects failed, including Toowoomba's 2006 referendum and San Diego's first attempt at reuse.

02 · Two other exacerbating factors

1) Pollution. Globally, the challenges with increased water pollution are coming front and center, as modern society has led to polluting our waterways with agents such as PFAS (also known as forever chemicals), microplastics, and pharmaceuticals. Increased use of fertilizers and food production cause an increase of ammonia and phosphate in waters, which cause harmful algae blooms that threaten aquatic life, harm water quality, and lead to an increase in GHGs.

The EU’s recast Urban Wastewater Treatment Directive introduces reuse requirements, quaternary treatment for micropollutants, energy neutrality, and forces pharma and cosmetics producers to pay for the water pollution they cause. The US EPA has been active in addressing PFAS, and microplastics are in its sights, too.

2) Aging infrastructure.
Much of the water and wastewater infrastructure, such as drinking water treatment plants and conveyance systems as well as wastewater treatment plants and sewer networks, in Europe and the US were built shortly after World War II on a 50-70 year service life. Many of those assets are aged and in need of significant repair, upgrading, or replacement – with the cost of doing so in the US and Europe measured in the trillions of dollars or Euros.

03 · Efficiency & new supply are two key solutions

Water has historically been cheap, leading to it being overused and abused. But when water is scarce, industry can be forced to reduce water use through greater efficiency and higher recovery rates, or develop alternative supplies, for example through desalination or water reuse - and the cost that industry is willing to pay for water begins to approach its real economic value.

An important concept is the marginal cost of water, which is the cost of the next increment of water, whether through efficiency, reuse, or desalination. Industrial water has historically cost users less than $0.10/m3, and often was free. But those cheap sources are largely used up. Global Water Intelligence (GWI) now puts the marginal new bulk supply above $0.50/m3 in the West, and reuse at about $0.60/m3 globally and near $1.00/m3 for many industrial users - though the actual costs can vary widely. GWI forecasts industrial process water demand rising 40% by 2040, projected to be met by a 22% increase in abstraction and a 57% increase in onsite reuse.

Efficiency programs can be effective in reducing water use but new water supply can still be needed. Reuse is growing at nearly 9% per year but from a low base; only 8% of non-agricultural freshwater withdrawals are later treated for reuse. The Global Commission on the Economics of Water is advocating for a reuse target of 50%. Seawater desalination has a current capacity of about 25 billion m3/yr of freshwater (about 1.5 years of Colorado River flow, to put it in perspective), and is growing at roughly 7% per year.

The US EPA released Water Reuse Action Plan 2.0 earlier this year, explicitly framing reuse around industry, the technology sector, and energy, and the US is considering legislation that would provide an investment tax credit (ITC) for water reuse projects. Bluefield Research forecasts $47.1B of US municipal reuse capex spending from 2025 to 2035.

It’s because water is largely indispensable that it has a real value that industry is willing to pay, and the cost of water trends towards its real value. And as the willingness to pay for water rises, that creates a market to fund innovative solutions that provide that marginal water at an attractive price.

04 · The need for innovative solutions

The old ways of doing things in water are clearly not a fit for meeting the world’s water needs. Thankfully, innovators are rising to the challenge. Burnt Island Ventures is seeing an incredible outpouring of founders jumping into water, at a rate of about 60 new deals reviewed per month and a total CRM size of ~2500 water tech start-ups. The World Economic Forum’s UpLink program received 234 applications for its latest Water Challenge. These companies operate in every region in the world and range from hardware, software, to business model innovation, providing solutions to industry, municipalities, consumers, and insurance.

We will give a few illustrative examples of innovative water tech companies that are scaling solutions to help solve the water constraints: Aqua Membranes and Kilimo are improving water use efficiency (though in very different ways to very different sectors), Epic Cleantec provides a solution for reuse, and Flocean delivers a new supply of water.

Aqua Membranes (BIV portfolio) raises water recovery rates and reduces energy intensity in reverse osmosis using its proprietary printed spacer technology, producing more water from the same feed and the same footprint at lower energy. The company’s tech is a drop-in replacement into existing systems and is being scaled in semiconductor, beverage, and other industries as well as in desalination.

Kilimo (WEF UpLink) enables corporates to fund verified water savings by incentivizing farmers to adopt more efficient irrigation practices. Rather than selling irrigation technology directly, it connects agricultural water savings with corporate water stewardship commitments through a measurable outcomes-based model.

Epic Cleantec (WEF UpLink portfolio) provides onsite blackwater, greywater and rainwater recycling systems that enable commercial and multifamily buildings to treat and reuse up to 95% of wastewater. It combines treatment technology with integrated water reuse systems that reduce potable water demand while helping building owners meet regulatory and sustainability requirements.

Flocean (BIV portfolio, WEF UpLink portfolio) puts seawater reverse osmosis systems 500 meters deep on the seabed, where colder and cleaner seawater cuts pretreatment and where the depth provides the head pressure to drive the membranes, cutting energy requirements. The first-of-a-kind (FOAK) subsea desal plant was commissioned at Mongstad in Norway this June.

05 · The acquirers of water tech companies are active

The M&A activity in the water sector is on the rise, providing validation to the thesis that water tech is a great place for founders and investors.

Ten $1B+ M&A deals in the water sector have been announced in 2025 and 2026, including Ecolab buying Ovivo’s ultrapure water business (principally for the semiconductor industry) for $1.8B, Glenwood buying RO membrane company LG Chem Water Solutions for $1B, and EQT buying desal company Seven Seas Water Group for over $1B. There have been a host of sub $1B deals, too, that also create pull for venture-stage companies, including CRH acquiring Axius Water for $700 million and Veralto agreeing to acquire Cleanwater1 for $452 million, which is 17X of the last 12 months adjusted EBITDA.

Bluefield Research shows active private equity transactions in water rising from a handful in 2015 to about 70 in 2025, with exits rising from near zero to roughly 29 over the same period. Bain, KKR, TPG, Goldman Sachs, EQT, Vista, Baird, Neuberger Berman, HIG and Ember Infrastructure are all now active in water – they are some of the PE firms leaning in.

06 · In conclusion

Efficiency and reuse are advancing, the marginal cost of new water supplies is rising while the cost of reuse is falling, and regulation is creating funded markets. Water-technology innovators are rising to the challenge, while strategic investors and private equity firms are becoming increasingly active in identifying the emerging water technology winners.

Water gets solved when the value of water exceeds the cost of the technology that supplies it.

That is now happening.