 So hello everybody Welcome to the third week of the bait and thank you all for coming and now and this time around it's gonna be the Look at the bait on how to value water. So for what is worth? How to value water and subjective or subjective perspectives? So we have two speakers now the first speaker is a big block and he develops a PGM 20 billion during best thing a solution portfolio Including impact measurement he also manages a number of special projects including ESG integration in the strategic asset allocation Before joining PGM investments in July 2011 Pete was at the World Resources Institute in Washington DC and held senior positions at the Netherlands Ministry of Foreign Affairs And in the private sector As water resources experts he worked at the World Bank and the United Nations And beat holds a master's degree in water and water resources management from the Wageningen University and Applied environmental economics from the University of London Our second speaker is David Seltlum. He is an assistant professor at Leiden University College at the Hale Where he teaches various classes and economics. He received his PhD in Agricultural and Resource Economics From G.U.C. Davies He blocks on water economics and politics at Aquanomics.com He has to books the end of abundance economic solutions towards scarcity and living with water scarcity He gives many talks to the public professional and academic audiences and brights for popular and academic outlets and well he also lives in Amsterdam And And our moderator is Dylan Mack. He is the project manager at Valium Water With a Ministry of Infrastructure and Environment for the past three years. So we found him like the most Like applicable moderator for this date. So now we really would like to to ask the three participants to join the table So now we're going to give a few words to Dylan and then we will begin with the presentations Thank you very much Thank you very much So I'm very glad to hear We are working on Valium Water already for quite a few time as you may know It's one of the subjects of the high-level panel of water Which is a panel consisting of 11 heads of states our Prime Minister my brother being one of them and somehow it ends up that the Netherlands chose the subject of Valium Water as the initiative to lead within the panel and Well, and I'm ended up as project manager to lead this And it's really an intriguing subject and I'm very happy that we hear now in this scientific Environment to hear your comments on the subject. I need to tell the speakers on the subject I don't want to tell much more about it. Let's just listen to the Speaking and I'll introduce people. It has been introduced but it gives words of peace and then we go into debate and In the second part of the session I really would like you to join the debate So we can really interact on this subject Thank you Yeah, that also works because I've got slides here that I want to show you and also to keep myself on the straight and narrow here My name is Pete Klopp as you can see from here and I played it from bone playing playing against the tide in many ways I started off as a water a warning a water engineer and then I lost the plot frankly from engineering to economics to finance The engineering got me to places like Yemen then I quickly discovered that the technology is almost always there, but you know What are you gonna use it for and then it becomes a matter of incentives? That's economics and eventually I started wondering, you know, okay, but if all that is taken care of Where's the money who's gonna pay for this and that got me to PGM PGM is the manager of one of the biggest The second biggest touch pension funds. This is a nation of savers as you may know And we we like to say for all age and There's huge pension pots of money here in this country. This one has two hundred and ten billion euros in it and I joined PGM because it Proclaimed itself the world's most responsible investor and I thought oh, that's interesting. Let's see what what's in it Well at first not a whole lot frankly, but then over time the past five years or so We learned to be for certain things rather than just against certain things You know, nobody wants to do child labor, but what do you want to invest those two hundred and ten billion euros into? Well, we picked four themes climate water food and health This was before the sustainable development goals came along Water is one of them. And I guess that that was my ticket to this this meeting here Now the problem with pension fund investments is that of course we want to be around in even 30 40 Maybe 50 years time because even then we'll still have to pay out pensions So we have a long-term investment horizon, which is good for difficult things like water But we are still accountable on a much shorter term, which is very tricky So the moment We don't make our financial returns The shit hits the fan Pardon my French And you can in fact lose a lot of money while you are going to be right eventually So this is a very tricky balance to strike, you know, you can invest for the long haul But even but if you're you're getting killed because you don't make your expected returns your financial returns in The years time Then it's game over So this is my my new problem and my new challenge Pensions first impact as a bonus. That's the kind of organization. We are we care about impact But the first priority will always be paying out those pensions and you can only do that with real money Now water is then a priority investment team, but it's hard to invest in and that's the topic of the night I think This is a familiar Graphic I think too many of you. Maybe not it comes from the water resources group 2030 and it projects the water supply gap that the black box in the middle There are there's demand on the left side. There's sustainable supplies or supplies deemed to be sustainable on the right and They won't match anymore in the next very near future So there's a supply gap This is the Technical part of my presentation. There's going to be a supply gap. You see that here I'll talk a little bit about the investment gap and then eventually about the finance gap It's not a whole lot of slides. There's only ten or so oops, sorry So there's it. This is another graphic, you know, saying the same thing There's going to be a supply gap There's simply not enough sustainable water to meet projected demands in the OCD countries We're doing all right But of course the challenge will always be in the bricks Brazil Russia India China and South Africa and in the rest of The world are we so India and China stand out is particularly problematic. That's where water simply won't be there At least not on a sustainable basis So what to do? Invest you would think, you know, let's just fix this And if that's the underlying rationale that I very often run into, you know, in technical people engineers you Always seem to think that you can fix this this thing, you know if push comes to shove You know, we'll find our way out. We'll engineer a way out of this pickle. Well, maybe we can but you need it shitload of money for that 260 billion for capital Expenditures capital investments and even more for operational expenditures So that's the sort of money we're talking about here. Now, that's that's drinking water supply and sanitation So that's where the bulk is going to be needed and the 9.6 that you see a little bit Below there, that's the sort of money that would be required for proper water resources management Either way, this is a lot of money money. That simply won't be there if you just look at investment at the multinational Development banks or at governments even there's simply not enough public money To plug the investment gap The numbers of course are a bit, you know, flipped out of thin air They could be, you know, not an order of magnitude, but a few billion euros left rider center, you know, you could easily Allow yourself that that's that The range This on the right has the numbers slightly different again You see that water is a sizable chunk of the infrastructure requirements globally, but it's not the biggest chunk I put it in even though it doesn't quite correspond with the earlier numbers I put it in because water is just one of the many things an organization like mine can invest in We picked water as an interesting theme, but if it proves to be too difficult, we'll do something else I think this is important for a point that I'd like to emphasize at the very end But I'll give it away so you can chew it over already the Regrettable thing is that a big social need even a big hairy growing social need does not necessarily make an investment opportunity So need does not equal investment opportunity and this is an important thing to keep in mind the need is obvious very obvious The investment requirement is also very obvious What is less obvious is that investors like Peter Gem will actually plug that gap Well, let's see how far we can get them Because water is under invested in many of the places around the world that we would like to invest in and that we in fact do invest in You you encounter a lot of problems water risks They're there because water is under invested. So what are the consequences of that? There's competition around water There's weak regulation. There's inadequate infrastructure. There's pollution. There's climate change playing its funny games with water availability All that has business impacts. This is when it becomes interesting not just to the water sector itself But to every other sector that depends on water that kind of dependence Those risks they have financial consequences So water is biting us either way, you know either on the opportunity side where there may not be enough Opportunities yet or on the risk side where other sectors other investments suffer Because of all these water related risks So water becomes a financial issue Which is all the more reasons for all the more reason for organizations again like PGM to start looking into it seriously So there is a supply gap. There is an investment gap and the investment gap water being under priced also leads to an incentive gap you could say You know if water is under priced, you know, you'll see what happens No surprises there, you know if something isn't properly priced, you know people are going to make inefficient use of it That's the nature of the beast So under pricing has two implications The incentive is not there to use the water efficiently and The incentive is also not there to invest in it in the first place Why would you invest in something that is given away for free or nearly free? So there's this fundamental thing that's wrong with water that makes water such a difficult thing for us to invest in it's underpriced The story for the quality of these graphics and you can't read the left one at all But I'll tell you what you can find there these the one on the right here that has stressed against prices And it's almost inversely related which is odd Why would it be that in Denmark which happens to be the top bar on the left-hand side? Why is it that water is most expensive in a place where it's less scarce or least scarce perhaps even? And why is it that water is underpriced? Where it is most scarce so the top bar is Denmark the bottom bar is Saudi Arabia. How weird is that? So water is expensive seven dollars twenty three cents in Copenhagen Well if you go to Riyadh you're good because it only costs you three cents The Riyadh water is mined water at one point. There won't be any Well, it's maybe desalinated water. It's a mix, but it's going to be it's very expensive water However, what you pay is almost ridiculously cheap This is what is wrong with water pricing makes no sense. It has almost no relationship to scarcity Maybe this is pushing in an open door, I don't know But this is what makes water problematic for an organization that would like to do good But doesn't want to lose money in the process So here's my clincher, you know when is a social need not an investment opportunity? Well, that's when If the water drops water availability drops prices don't go up, you know, that makes water weird Come on if it is it stays at one dollar or one, you would meet or whatever Even though water levels are dropping even water scarcity increases, you know, that's weird so Existential values of water, you know all the values cultural social optional All these these these soft values But real enough You know cultures they are much bigger than the price we pay at the tap But it's worse really. It's not just it's not just those values That are much bigger than the price we pay. It's also the economic value It's we're still it's the financial benefit that very often in many I think in the majority of cases Is vastly bigger than the price you pay. What does that mean? That means that You would you would like to pay it for you can pay a lot more You don't have to so you won't but you can because you derive so much benefit from that water But you get it for free. Well, nice. Nice good for you, but again makes for a tough investment case and Then the worst my favorite though is when the supply cost Out numbers The price of water so if you pay less then it will cost the supplier to get that water to your tap That's the that's the weirdest of all cases right but all very real You know, this happens in the majority of places So you can't even pay the proper price It costs the utility to get you to the water to get you the water in your home or in your Company or Production plant So here's Barcelona, of course, they've got bigger problems right now, but they had one in 2008 too They had one in 2008 which is here's Barcelona and they organized the Olympics This is not a backward town or anything. It's a beautiful place But they ran out of water in 2008 All the same, of course, you know bad luck and dry summer and all that but it was More than anything, you know poor water pricing Farmers in the watershed that On which Barcelona depends for its water they pay less than 1% over the costs To get that irrigation water to their fields So the supply cost Was 100 times bigger than the price they paid for that water Now that's that, you know, how can you invest in in something that is so underpriced? problem So here was Barcelona down to actually shipping in water from the south of France the water actually arrived by tanker That's how desperate they got at one point And that's an immediate consequence of underpricing Prices are often discussed in terms of morals, you know, you can't price for something. That's God given. Well, tell that to the people in Barcelona You know God given or not They ran out of water and then all of a sudden they did have to pay because these tankers didn't come for free now here's the clincher There's a supply gap. There's an investment gap. There's an incentive gap But that's almost the same as the investment gap you could argue and then there's a finance gap How do we find investors that are willing to come up with the money the huge numbers that we saw earlier? First of all, why don't they yet do this? You know, why don't we jump on the social need? Well parts of the familiar arguments prices don't convey scarcity or Pollution or any other water related problems that just not baked in the prices we pay It's hard to build an investment case if you don't understand the risks fully, you know, that's part of it, too There's all these multiple values the blight your principles talk a lot about that So you have political interference. You have this on-off sense of urgency You know, then you're getting ready to invest in China because it has a drought and all of a sudden money flows And then by the time you get there they have a flood You know that happens that's water, right? It's on and off again at least in people's minds And then there's the engineering confidence, you know, that I meet that a lot in India I don't know offense to India, but and India is another country of engineers, right? So I go to NTPC, which is a big huge utility and They have a vast dependence on water and Yet they can't be bothered with the problem of running guy and Because you know when push comes to shove they'll fix it They can fix that. Come on. No price immediately then the problem is That financial analysis often comes as an afterthought of all too ambitious water designs. This happens a lot too You know, and it has little to do with water supply and sanitation or partly to do with water supply and sanitation But the Jakarta Bay, for example, it's a huge Project right protecting Jakarta. So the bill is 60 to 80 billion euros and stiff That's a stiff bill. You know, you won't find an investor that says, yeah, that looks fine to me. Let's do it So first can be very ambitious design and then the giant bill and then nobody dare to do anything anymore You know, that can be a problem too in the financing gap On the other hand, sometimes you have projects that are simple too small therefore too expensive Too risky too difficult, etc. So all of this happens and conspires to make water hard to invest in Now the Bladio principles, they're wonderful, you know, I've read them and you know, I barely hold back my tears, you know, it's beautiful But they do little to mobilize private finance, you know, it's it's it's all true There's not a word I disagree with but I don't bring on board of the big money you'll need to actually fix that supply gap fix the infrastructure So what to do now? This is the last one. I hope for you There's a few things we can do to make it more attractive. I think well more attractive at least Yeah, there's an economic and financial cost-benefit analysis. You'll always need to do And very often we forget that right? We do the technical analysis and then sometimes we do the economic analysis But you also need the financial analysis, which is simply trying to answer this very very question. Who's going to pay for this? And who would want to pay for it? Who benefits from it and can we perhaps charge the cost of that particular investment to that particular user that has a financial direct benefit from improved infrastructure or whatever it is So financial cost-benefit analysis should really go hand in hand with economic analysis and technical analysis Not an afterthought because then you you this is the jacarta example, perhaps then you have a 60 billion dollar master plan But no idea Who's going to pay for this? pricing according to supply costs forget about existential existential values Forget about economic values. Perhaps if you forget about All these other values simply try to cover the supply cost. That's a massive challenge Not just in riyadh, but in many of the other places you saw in between the riyadh and Copenhagen Including Barcelona, then there's a few things in Supply systems. Yeah, okay Yeah, the water risk monetizer you forget that I'll get to it if you really want to know later But and then there's a few things we invest in infrastructure We invest in private equity and in listed equities in almost anything under the sun because otherwise you can't You can't deal with that that's a huge chunk of 210 billion euros, right? You have to get a little bit of everything So we invest in infrastructure and there the main challenge appears to be that in many of the countries where water is that that acute need we have very much doubts with About you know government policies and its capability to pay back the debt. We're happy To buy their debt happy to lend them money But only for confidence that that money will eventually come back challenging On the technology side many promising technologies are way too small at least finance wise and So here we we almost become a victim of our own size You know, if you are trying to manage that much money, you can't do it in little bits of a million here and a million there So in infrastructure, for example, the hurdle is 50 million So if you only start looking at opportunities once they're 50 million or bigger A lot of the good stuff won't even get to your desk Very unfortunate, which is why we need to aggregate those small Good ideas into something that makes it worth a while So sometimes it's too big, but very often it's too small and you need the aggregator Or aggregation to make make an investable opportunity from that I think a very promising way to do this is blue bones. Maybe you've heard about this That's money that is raised by governments can be provincial or local governments or national governments can be international development agencies or banks They raise money from the capital markets that people and organizations like mine and they raise that money for a particular purpose Way back you had war bonds in the u.s. You had infra bonds You had all sorts of bonds tied to a particular purpose I think this is especially in this day and age when money is so cheap interest rates are so low You could raise a ton of money that way and tie it the specific water projects I think that's a promising avenue and one that is already being used for instance by u.s. Municipalities that sit on very creaky lousy infrastructure that needs to be replaced real soon They found this way to raise money to do just that And I see that you're getting a little nervous, but I'm almost done Yeah, oh, yeah, this this is something that I'm happy to share later, but it's way too small But the key is this You can talk about values And value is ultimately in opinion That's what you get But not never ever confuse this with price It's what you pay and it's the price That makes the investment case Okay, well, thanks a lot. That's a very good I think David that that's something that you pick up this is just to set the damages and you can get mad Well, that's right here for debate All right Yeah, Pete put up a Cartoon for my book. It's hard to disagree with my own book What is this thing anyway? It's a microphone. Oh, is it? Are we to the public? Oh, okay. That's your toy. Okay. Good. So, um I um Yeah, I was told that we're supposed to debate things and I'm supposed to disagree with Pete, but unfortunately I think we agree on too many things Um, but what I'm going to try and do is uh, I'm going to give a few comments because uh My slides are this back of the Bellagio principles. There's the front. There's the back But I have um some comments that I wrote down while while Pete was speaking. We'll keep that up there. That's a good, uh image Uh, as well as some comments that might be a little bit, um broader scope in terms of this discussion this debate so And also, I'm very glad to be here and and I look forward to your Controversial and challenging questions because if we just agree all the night, it'll be kind of boring and You'll be sitting there trying to get to the borough. Anyway, um, so Uh, first of all, I I disagree a little bit with Pete because I think that it's I agree with him It's not a technology problem. I don't think it's actually a money problem I think it's a governance problem, which is really Underlying most of the problems that we have with water management. Uh, you're here in the Netherlands Which is practically speaking on the edge of underwater at any given moment They're on downstream from the Rhine River, which is a kind of full of industrial and agricultural effluent And yet I have the best drinking water Potentially in the world in Amsterdam and as well as in these other parts of the Netherlands So the technology is there the finance is clearly there and I think in the case of the Netherlands There's at least 800 years of governance of evolution with the water boards and so on That underpins the system. So I pay a lot of attention to governance gaps governance issues more than for example finance gaps um And when it comes to the the slide you put up earlier about a supply gap This is as an economist. There is no such thing as a supply gap You've got supply you've got demand and whether or not they meet is an interesting question But if they do not meet as in there's more demand than supply, you're not talking about a gap You're just talking about misery and in most parts of the world where water is not adequately supplied the misery we have Is a lack of food security the misery we have our children who can't go to school The misery that we have our ecosystems that are almost always under threat because in developing countries I think they have the correct priority, which is to take care of their people But the impact of that often is that the environment is left behind and that actually has negative impacts In the future for those same countries that usually they regret later on And almost always negative impacts on the poorest people in those countries who cannot cope with the lack of what are called ecosystem services But really mean functioning environments I want to point out that Everything we're talking about is going to be made worse by climate change The only thing That we can count on is that climate change is going to increase the water cycle Velocity which is going to cause Bigger droughts bigger floods bigger temperature extremes and the water cycle is going to be The enemy of far more people than it is today I'll advertise one of my books right now, which is life plus two meters Which is an attempt to get people to think differently about how the climate change will change their world And i'm i'm doing that book project with at the moment the second volume with the aid of 35 other authors Because we think in some ways it helps people to have an imagination. It's like a science fiction type of thing But I think everybody in this room should be thinking not just about any kind of system that they're familiar with but that system being broken by unexpected types of behavior as I come from the us and I think that one of the best headlines was houston hit by third 500 year storm in three years So that's actually how bad it is In terms of what might be happening and of course how badly houston was prepared for that Which was I think entirely predictable had nothing to do with technology or with a lack of money It had to do with a governance failure so now to Some of the things I was thinking about before I heard pete's talk I wanted to bring up some some different ideas. These are just Thoughts that you might take into account when thinking about the value of water One of them is a very famous paradox the diamond water paradox That's associated with adam smith. Adam smith by the way was confused about this paradox And what he said is why is it the diamonds which are so entirely useless or so valuable and water which is so important Is so cheap And this is he wrote this in 1776 and it was a hundred years later that economists Figure out the theory of what that was and the theory of that was that If you have plenty of water then the additional units of water are very very cheap But when you have very little water you're in the desert There's one liter of water and you have a diamond ring You're definitely willing to trade the diamond ring for the liter of water because the water is scarce. So water scarcity Uh, uh is really what drives and determines water value And now i'm going to join into what pete was saying I'll I'll try and disagree gratuitously if I can but uh the value of water is of course very subjective And we should take that as a starting point not as a problem It's something that we should keep in to consideration. It depends on the person It depends on the use of water If you're drinking the water, I'm sure you put a higher value on it than when you're washing your your uh, uh, Floor or uh, or when it's raining outside Um depends on time and place of course if uh, if there's a drought Everybody's upset about not having water if there's a flood they're upset about having too much water So the value is changing within an individual in the day Or over the course of a year or a location so values no one's ever going to agree on what the values are So we definitely should stop thinking that we can actually find values But what we can do is we can try and reconcile values and reconciling values happens in two different ways There is a economic method of reconciling values, which is using prices and markets And there's a social or community or political method of reconciling values, which is involving voting or Meeting meetings or poldering It means that a bunch of people have to agree on the values that they're going to have And the market value uh, and the social value are not reconcilable You cannot reconcile the environmental water flow with the cost of a bottle of drinking water You need to keep those managed separately And uh, the book that I have living with water scarcity, which is free to download by the way Is divided into two parts specifically because of this Aspect of water so the the first part is what I call economic water and I call that the simple part The second part is about social or political water. That's the difficult part and and in the book I actually say I'm going to explain part one part two But what I would say in terms of how to understand or manage water And the and by the value of water I would say first we all of us as a group need to decide how we want to Manage our social water. We need to set aside a certain amount of that water for the environment. Usually that's the most important part, but also shared infrastructure projects, for example and the the and once you set that aside and in a developing country that set aside will usually be low compared to how much they want to reserve for economic water, but You set that aside through a political mechanism That everybody has to agree to and I'll get to all the problems with that discussion But then the remaining water you can use Economic allocation mechanisms so for farmers that would mean a market or a price For city people you would have prices that go up when the water is scarce from drinking water, which p pointed out doesn't happen So you need to have the the social water separated from the economic water because if you mix those metaphors together those management methods together Activists get upset economists get upset water managers get upset nothing happens nothing works So that's actually what happens quite often in this in this world Now I think Pete said something absolutely true Which is the value of water is not the same as the price of water which is not the same at the cost of water And if you're unlucky the cost is higher than the price is higher than the value that does happen The the kind of interesting good news is Saudi Arabia reformed their tariffs About just over a year and a half ago as I had a paper in press discussing Saudi Arabian water they moved it from the 99 subsidy, which was in this figure up to a zero percent subsidy as a way of Closing that financing gap that was also Leading people to waste water just as predicted, which was also leading that system to be Not maintained because there was no revenue to maintain the system. They constantly needed subsidies So we need to remember that that these three concepts should not be mixed together Uh, but as part of this discussion We have to remember in in when it comes to water systems that the price which is you showed the the price per cubic meter in the net in Denmark the price Almost always I would say 99 percent of the time directly Shows water as free. So the you're paying the price of the system. That's the price of the pipes That's the price of the of the labor. That's the price of uh Building the the reservoirs and so on those that price those are system costs the price of cleaning the wastewater Which the in Denmark they actually take much more seriously than other parts of the world That's the price of water and the water itself is free in Denmark It's everywhere So they have no problem But in other parts of the world where I come from in california It is still free even if you go into the middle of the desert or los vegas Which is definitely the middle of the desert you only pay the system price That is why the price of water in las vegas is one fifth the price of water in amsterdam And the water consumption in las vegas I know you will be surprised is five times of water consumption in amsterdam So guess what economics still works if it's cheap they use a lot of it if it's expensive They use less and and we could have many many many examples of that So if you price the water too cheap then people will use it according to their own value But they certainly are not going to use uh What they should be using in aggregate to keep the system Uh robustly uh Let's see robust against problems and preventing shortages So you're going to have shortages and las vegas is always on the edge of a shortage in the disaster Uh, I'm I find it interesting that the belagio principles Are not named after the casino in las vegas. They are named after a very nice town in uh in italy That is constantly uh swamped with tourists in a difficult place to visit Because they can't manage their prices But they're italian So that is something that we should talk to them about parking Now I don't know if they had the discussion when they're talking about value of water But uh now the thing is so what I said earlier is that if we want to manage water as a private good using prices That's absolutely simple relatively speaking to uh managing it socially So the problem with the social uh water the environmental water or we're running out of water is that It's hard to aggregate those values And why is that hard because traditionally you'll have a large group of water users known as the Trick question come on Who uses the most water in every country in the world agriculture? Thank you And they have had a traditional right to that water and some people come along says but we're environmentalists Or we care about the environment or there's ecosystem services, but sorry property rights or political will or whatever And so actually getting any kind of agreement on how much water to take out of the environment is almost impossible anywhere you go I know in the eu it's pretty pretty much broken down every time the common agricultural policy comes back into discussion Because there's an idea we should be environmentalists and then all the farmers say no and then they that's the end of the discussion So it's actually really hard even in one of the most bureaucratic parts of the world to actually have this as conversation But the result of not having that conversation is the water is mismanaged in terms of its values and use And you get a lot of people who are upset Now Two minutes. I'm almost there. Well four or whatever almost there. Uh so The the the political process of reconciling these different values is left left to politicians politicians have a couple problems Being in charge of this process. The first problem is they are uh limited in how much they understand And what that means is they'll usually uh decide to do nothing or they'll decide to do something that's very simple, which is for example to build a huge dam Or a desalination plant or Something else large and grandiose so they can cut a rivet in front of rather than pursuing a thousand small projects rather than Trying to uh get people to have their own behavior affect the water supply demand balance the second thing that politicians tend to have a problem with doing is uh Contradicting water managers because almost none of them have any idea about engineering And the water managers are very good at telling them to keep doing what we've been doing Although that doesn't work, but the politicians don't want to fight with the water managers So they have very little uh to to go with in terms of alternative plans They won't listen to economists, of course because economists don't understand how to turn pipes and all kinds of stuff So economists uh are usually uh not listened to Lawyers tend to be listened to and then you have engineers versus lawyers and that doesn't work at all And then the last problem with politicians I think you'll probably be not surprised to hear is corruption and the biggest kinds of corruption There's there's very simple corruption, which is I will put water to the people that give me money I'll take a bribe but a much more difficult problem of corruption is what I call uh The corruption of preferences or the corruption of beliefs and that's the politician who says this is what we should do because I think it is best even though that politician is wrong But they won't find out that they're wrong because they have no objective way of understanding it They're going on their so-called guts, right and the united states is on their second gut president It's not going well But uh if you have people making decisions based on their gut rather than that rather than on what is good for the majority of people Then you're going to have mismanagement of water so um The good news is and this is not really good news That if you get wealthy enough you tend to care more about the environment And you tend to have better political institutions And that combination of having more money and more care and better political institutions means you tend to have better water management But the road to get there can be brutal in terms of uh, uh, the uh, uh, the people who are suffering the poorer people It can be brutal in terms of uh, environmental damages And and uh damaged ecosystems, uh, but we do tend to see a very high correlation between better water management and country wealth or individual wealth But the majority of people in the world and I think uh people who are at ihe Certainly study this all the time because they have a lot more experience in in developing countries Those people are struggling with we don't have enough money. We don't have enough expertise We don't have political will and that's where uh these discussions should be happening But they're very difficult to have finally um I want to say that no matter what water management system you have and I mean In the whole the whole iwrm the whole integrator water resources So environmental water agricultural water drinking water industrial water no matter what system you have it has to be flexible And it has to be something that will cope with a drought It'll cope with a flood it'll cope with a change of your industry from potato chips to silicon chips That's an old cliche and it'll cope most importantly with climate change because the systems that we have right now Are going to face those impacts of climate change and many of them have never been tested against the kinds of Circumstances that we're seeing As we've just were reminded in in houston and also much more tragically in the caribbean where Several hundred people died. It was better than thousands, but several hundred people died because of poor preparation. Thank you very much Thank you very much for this Very lot fault actually But Let's just just jump into the debate And I just first like to ask Pete because Pete Was first and he didn't have the chance to react on David And David had the chance to react on Pete so Pete from hearing what David was saying and He agreed quite a lot Which you were saying, well, maybe I don't agree so Can you give some other thoughts? Well, I think this is a bit of a small man I'm pulling up here, but that's that's fine. David I think an essence says, you know, it's the government It's governance stupid And I simplify my argument do it's the price is stupid And of course, this is a chicken and egg thing, right if the prices were Reflecting scarcity or reflecting pollution or reflecting any water-related externality Then government governments would probably Get in line, you know, then things would work like they work in danmark for example But the opposite is also true of course if governments were organized well prices would probably go up Or and we would find a way to shelter The you know people who can't read who really can't afford it from those higher prices like we do in so many other areas So I think it's a bit of a chicken and egg. They go hand in hand But for the sake of argument, let's let let's just I'm sticking to my guns, you know Get the prices right, you know, this is the mantra that the world bank has been saying for for decades now Just get the prices right and everything will be fine Well, it works for a financial organization, you know We certainly do want to Contribute to solving the problem But again, we also want to make our money And then prices are indeed the very heart of our our our arguments um I do of course understand that there is social water there's environmental water there's political water, perhaps And maybe we should have a set aside for all that I think all that can be arranged But that does nothing that does not do away anything from The importance of prices Which is the only thing that make us behave well Use water efficiently and it will bring in the money we need to build the infrastructure Or repair the infrastructure Or desalinize seawater or you know, do all the other expensive things that we'll need To make sure that everybody gets his or her water But oh better than that Although you wrote a little about behavior and economic relations between behavior and practices, so What your reaction to this Let's say strongly simplified approach What story of how you see this? Well, he's right Thank you Okay, we can all go home now He's wrong though about the chicken breast of the egg. I think uh, no, I think So I was differentiated a little bit between what I call social water and economic water and if we I think we can go back to the idea that you can't price environmental water I think we can kind of agree on that Because everybody shares it. You can't you can't and economics would say it's not excludable. You can't separate You can't put water around it And so in that sense You have to have some way of thinking about how to Take care of your environment and there's a shadow price and there's a value, but there's not really a good market price when it comes to Back to drinking water or water investments and the world bank and infrastructure I think that there's Much more governance comes first and the price comes later I don't know of a single country where the price is right And the governance is also not right. So I think governance is a Necessary condition good governance, but not necessarily a sufficient condition for having the price right The only time you do tend to see that actually is where The government has been taken out of the loop entirely India is a good place to find bad water management and Where they have this quite common problem with setting the price of water or something like Say five cents a cubic meter, which is almost always far lower than the cost of delivery. And so you have service areas that are very limited And and you get much much more worse kind of behavior. But what you do see in some of these parts of India is Despite number one, you'll see private tankers that are delivering water Usually at least 10 times the price of the the so-called tap water service. It isn't there But and the people that are lining up to buy that water number one they they That's the best choice they have But you have these entrepreneurs that are showing up that are essentially providing private water We also see this with the bottled water companies that are selling bottled water of Very equality in various developing countries. And there They have the governance system is not functioning to Provide drinking water services, but they do have a price for their product and that product is fairly reliably delivered And it does what it's supposed to do. So that's the absence of governance and the price works. So I think maybe As as water systems go You need to have governance but in terms of private markets, you don't necessarily need to have governance so maybe that's mixing up the messages, but I I think yeah, that's all I just said But that means that you could take out the government because that's what you think is If you do some things work, if the government is out to look, then this would start to work. Well, it's worse than useless is what I'm saying Yeah, things would start to work, but at price, you know, I think we've all been to places where where the poor in particular They Water prices It's expensive to be poor, you know as it's saying we have it And I lived in Kenya for a couple of years and I paid a whole that's a lot less for my water coming through the mains if they worked at all you know Then the guy who was working for us Who would buy by unit of water, you know by little water Do you mean water so the unit cost for me was a lot less Water coming through the mains and it was for him buying water On the street now from a from a local So I think This just illustrates what happens if value and cost and price differ you get all sorts of weird things I just read the other day that farmers in India. I think it was in kanataka We're pleading with a power utility to continue power cuts why If the power would be delivered 24 hours a day Then farmers would irrigate their fields 24 hours a day and water levels would go down real fast So just to protect the ground water, they would rather not have power imagine, you know, if you are in that kind of a situation, how much More sense it would make to price water according to its scarcity That would probably be quite happily paying slightly more for their water Perhaps building renewable energy, whatever it is So that so that they could have both equal power And conserve the ground water But that that equation isn't that that solution isn't in the works just yet But it could If only we would be willing to you know price according to scarcity And just in this specific case there is actually a planning a program where they Install solar power pumps and they sell the power to the grid And the fact that they sell power to the grid gives income to the farmers and that appears to be More effective to reduce the number of water they They use for irrigation. So just an example of how this could work It has only started recently, so we don't know where that could really work But the kind of a way of putting things upside down, but let's let's go back to the discussion So we say The government is neat because if you don't have the government The the prices are getting in a very weird situation like what you were expecting. So this one kind of the government's control thing Yeah, so it's obviously it's not more complicated, right? So The the ostrom's owner and vinson ostromers says it was what's called polycentric governance and polycentric governance means circles That one circle of acre circle of acre circle so governance It's it could be very much top-down governance the national capital setting the standard for example It could be local governance like a local community kind of water utility And that's also and it's kind of peer-to-peer governance a kind of managing comments So I don't I do want to say that governance is very important But I I don't want to mix up all the governance models and one of the most famous examples of Water management failure potentially is the coach of bomba case in bolivia the water wars from around 2000 or so and and that was and I I love telling this story because everybody thinks they know the straight story Here's my version straight story number one the local public water utility was totally failing and the services were terrible and Corrupt etc and the world bank said we need to have a privatization because they were on their neoliberal bandwagon and they had a single Bitter for the contract so they made they replaced the local incompetent public water supplier with a international incompetent private water supplier And they that private water slide was in it eventually thrown out what they call the water wars That was pretty much what everybody paid attention to but then they didn't pay attention to what happened next which is that it went back to the local incompetent water supplier and Literally saying business as usual can happen now when I was researching this it was actually Sad but it didn't stop there because in a community that's near coach of bomba much much smaller community They were giving an example of how they had a cooperative essentially and they had a governance model The governance model was the neighbors and they all walked on the water lines They made sure people paid the major people didn't steal the water They made sure the water supply was kept stable And so that local community which was much smaller coach of bomba is a very big city But the local water community water management was was robust and and sustainable And it was the exact same education the exact same water catchment the exact same even more competitive technology So in that sense it you can have very much success And that's because the customers were also part of the management team Yeah, that's also I want to say India so in gujarat they've gone further Because they said we will give you reliable power supply for two hours a day And that means you don't pump it otherwise and they keep their ground water in sort of place So there was a version of this yeah, but they made it into a actual planned program Thanks. So you you're explaining about a certain model of government that will work But there are also quite a lot of governments, which is not very working and the question is How do we get that working because and there I Step also back to the private system How how can we and do the value that the needs you say value cost Value price costs which are not aligned to each other. So the question is how how can you Use the value of water and the discussion about value water And and you talk that to governments to get this wrong balance of value price cost And to to to turn this into right balance So how can we also from that value point of view and it's also from the price point of view Come to improve the governments Well, you know, I think there's not a hard fast answer to this one But I think there's a few things that you could do better next time you seriously try I mean in the 90s we tried this right this was the world bank of its Most powerful and most intimidating But you're bummed by a lot of places. I think the mistake we made back then was that Prices going up or attempts to price according to scarcity Came with privatization And that is almost, you know It's it's It's adding insult to injury You can you can then nicely blame the private company And everybody does because it's such a great enemy, you know Even though the idea behind Paying more for something that scares it costs a whole lot to get to your tap It's sound this has been I think slowly the dutch model or denny fallow came in where Water is being priced according to scarcity or to the cost of supply and treatment, etc But it's not done by a private company. So you don't have that that extra Difficulty of the of fearing that some private uk or france company a french company is trying to rip you off for people in So I think that's one thing Sensible prices doesn't equal private. That's one thing The second thing of course is that you need to allow yourself time. You can't go from a low level equilibrium low prices low surface to a High level equilibrium high prices high certs. That's ultimately where you want to be because only at that point You've got the incentive to be efficient and you give investors an incentive to invest But you can't get there overnight So what do you do? You need a credible path to go from low level to high level equilibrium I think this is where multinational banks have a role to play Now luck would have it that in this day and age not that every country mind you But in quite a few countries that struggle with this problem the cost of money Has never been so low You can borrow at ridiculously low rates, you know, it's all bad news for us pension funds Bad news for us savers But it's good news for those who come up with water projects because the cost of financing those projects has never been lower So you could argue that this is the time to try to Go from low to high level equilibrium Maybe thanks to those blue bonds Maybe the World Bank and all the other international financial organizations need to issue those bonds. We'll buy them Because we're crazy We buy them because we can't put everything in equities or in infrastructure or in private equity We buy government debt It only makes you one percent or two percent or three percent a year. So that's a low return But if you're on the other side of this equation life's never been better So if you can't get to the high level equilibrium now Whenever It's very enthusiastic form of Thank you. This would help. Maybe we could just Just So there's something I I call the the public private public cycle And the cycle so I I'm writing a page right now about the history of the death drinking water sector And the history which started in in our paper, uh, in terms of being interesting around 1850 that history started off with A private vendors trying to make money selling It's called it one cent per emerald so one cent per bucket you would buy the water brought from the dunes and the Hague and Amsterdam and The private guys were there because the the the public sources of water were polluted the canals were discussing The groundwater was discussing if anybody who had money was buying that And then at some point the government got into its mind that it might be good to have a good public water system It was after thousands that died of cholera over a few times in the 1860s And then the government started putting a huge amount of money in and there weren't necessarily getting that money out so there was a subsidy and once the system got built Then people said oh now let's actually think corporatized it. It wasn't privatized it looks corporatized it And in the Netherlands it stayed that way and there's been this massive consolidation and so on But the pattern still holds is that when And this is this is going to sound like a cartoon cliche But when it's a private company, it's okay for them to invest a bunch of money and charge a bunch of higher prices This is very easy for politicians because they blame the private company when it's a public company There's massive pressure to reduce prices and to serve they call it serving the public But in fact they're not because if they start reducing revenue, they start going undermining maintenance And so on I was it on a consulting gig actually in Ukraine before they had their Revolution and they were saying we're going to to make it just kind of sort We're going to screw up our entire water management system What do you think and I said that's a bad idea and then they didn't hire me again. That was a World Bank project So The thing is that politicians have their hand on the lever and they really have an incentive to push the price down Obviously below cost in many circumstances And and what we're talking about now is how do we have drinking water? How do we have environmental water? How do we have major infrastructure? There's a big political role here But we don't see these discussions happening with phones. We don't see these discussions or famously with mobile phones, right? You can get mobile phone service. It's far more reliable than the drinking water service And we're almost any part of the world and that's because there's a market or some political sphere So you have a political interaction. You have water supply companies that were talking about drinking water companies their monopolies And uh, they have to be regulated. So here's where I'm going to totally disagree I don't think it's private versus public I think it's the quality of the regulator which again is governance and the regulator has to keep the monopolist under control And one thing that I see not happening is water managers being fired for failure to do their job This is to me. I I I don't I have no examples and if you have an example Please tell me the water manager who is fired when water Stares at easy Claire or when you have you don't have 24 seven service Or you're supposed to fill up your bathtub because that'll keep you going for the next week I don't see water managers being fired for failing to do their jobs Unlike what you would see in the car business or the phone business or the Printing of books business or the restaurant down the street. They would be fired and that's not happening so there's a lack of discipline of the monopolist and the regulator is the one that's supposed to do this as the private company they should be Find and lose their contract. It's a public company. They should be Also punished and as my parting example of this I'll give you that the Tennessee Valley Authority, which is the largest utility in the United States They own three nuclear power plants. It doesn't coal plants. They have a lot of power and water capacity But a couple years ago they Whoops failed to manage one of their It was a sludge pond. So it's uh It was the leftover stuff from burning coal that is not good for you and they Law the wall collapsed after waiting for several years of warning reports and it cost over a billion dollars of damages and after that happened The managers of course were never fired and they raised the prices of their services to their customers to pay for the damages So this is not how it's supposed to work, but we see this every day on the water business Not business Okay, well Let's let's let's come in and help Awesome help to the public because the way is how we go to do this Regulates its Adventure, but even regulators needs who is going to who's gonna watch the watcher exactly Who is going towards the watches and how and then you come again to Politicians where we have the question which we were talking about before how do you motivate politicians to To get this on the channel and to do the job for Watching the watches. Um, well, let's let's Ask about what what what are your thoughts or questions related to this we need to know? Thank you. Now. I'm going to If it works Oh I have a question. I heard the term behavior a couple of times including Engineers and politicians and regulators however, when I think About the behavioral term policymaking we're living in one of the best established principles of behavioral economics is that human beings simply suck And estimating future costs We constantly and consistently and systematically Underestimate what your costs to maintain things to repair things so When I hear corrupt politician The corruption of belief Isn't that that these politicians are just human because you know 99.5 of all human beings simply do not see The cost of scarcity the future cost of scarcity So are you asking for politicians that are not human essentially? And also the same thing for the investors. I heard the investors who would love to do the right thing As long as the prices are But if I picked up I'm taking fast and slow from airport butchers I already know that the highest returns of investment are probably to speculate On politicians getting drawn and investment companies that will be paid to fix Those things after they break Yes Well, I got part one I think So, uh, thank you for talking about behavioral economics Uh, I think that's uh, I'm going to use an example of Thinking ahead and the political class doing their job and the situation Representing a good plan for thinking ahead and that's the Dutch pension system Which is as I understand one of the best run pension systems in the world And I don't mean current management although that's right But I mean in terms of being fully funded and when I I was here for a couple years And I went back to the u.s. And I said I want to take my pension with me and abp said you can't have it We're underfunded. So we'll give it to you when we have enough money And that to me was actually a very adult response. Now, let me contrast that to the united system where the pensions are Woefully underfunded to the point to the tune of I think 50 trillion dollars off the books by the way This is not part of the budget deficit and it's mostly underfunded because the pension managers are allowed to assume They're going to make seven eight six eight percent I think you probably know the numbers correctly per year even though the markets are not Returning anything close to that. So you have a political class in the Netherlands and a political class in the United States Now you might think that the Dutch political class is far more smart than the american political class Let's not have that conversation, but What what I think is going on is that the the Dutch population the Dutch voters the and and the Dutch society says Really, we need to have a system which we can unbelieve and trust and work with and you guys should provide it And it's a very simple I think one page memo that says have the money there when I retire and in the united states They haven't gotten that memo. So it's not a question of intelligence. I think the question is political wills I don't think I I agree with the behaviorless Perspective that we're not really good at forecast in future But I think there's many examples of professional managers or professional politicians who absolutely can diagnose a problem An athlete can induce the correct behavior and that's not being made because of the choice not because of a myopia Second thing which is part of the same problem is that should we actually get together and think god I wish politicians would do this job. They have a collective action problem Which is to get everybody involved in forcing other politicians to do something and in many parts of the world Collective action is difficult sometimes because politicians don't allow political opposition They shoot journalists say put everybody in prison. We have many countries in the headlines doing that sometimes the country is Uh mismanaged out of control and no one knows what's going on and they don't like their neighbors and sometimes sometimes the country has a Good collective action mechanism, which again, I will cite the dutch as having I don't think the dutch are unique But the dutch have a very good uh history of working together through the polar and so on So collective action is important to enforce good behavior on politicians and uh, and you know, this talk is not supposed to be about politicians but the value of water in some ways is is If if it's if politicians are not going to pay attention to it Then in many cases we're left with these so just private solutions, which are they'll work But they're far less efficient As we've seen with climate change then, uh, it would be if we actually had a good Social political dialogue I like the question to you. I think there's a lot of truth in in in and Perhaps picturing politicians and investors. It's just a bunch of robins. We've got the investment horizon of the average rat And there's something to that and Maybe we're looking for superhumans to guide us To the sort of investments and decisions that we need to make long term But the fact is that we're short-term animals Um, no offense to any of you. Let me just talk about myself. I'm a short-term animal You know, I right now on a gloomy day like today. I can't even I can't even imagine that one day you'll see the sun again That's how short term I am but Just talking on the part of pgm, you know, um, we've tried to be that long-term investor and yet, you know may and Occurs if we don't have that coverage ratio that David was mentioning, you know, if we can't pay our suspensions tomorrow will be the paper and all health risks How do we try to be that long-term investor anyway? You know, pursuing investment opportunities is not the only thing we do prices Aren't reflecting scarcity and they may not necessarily do that in the foreseeable future But we've got other games we can play If prices don't convey the notion of scarcity and don't lead us to those opportunities, there's also the risk side in which we're working So if indeed companies as I have stuck in one slide and tried to make that point, you know If indeed other companies in our portfolio suffer because of water scarcity You can also try to make that risk they're running into more um more real to them And that also has investment implications rather than pursuing opportunities. You can also try to get rid of the layers And you do So if prices don't convey the message, maybe better risk analysis will do the trick Now, this is not another something that we need to get much better at and hopefully one day Some of you investors try to trust Statistics much more than they try to than they even try that alone are capable of trusting scenarios I think it's the scenarios that we need. It's not just the risk today It's the bigger risk tomorrow that we need to understand Now investors then are quite Capable of doing away with companies projects countries perhaps even that aren't up to the job In that way they indirectly send the message get that governance in order Or we can't invest in your place anymore So that's another thing we do And that's still about money. It's just playing defense rather than offense that we spend the first part of this this evening talking about So we aren't quite at the end of our tether waiting for prices to reflect scarcity We can do things in the meantime And in a way it's all upping the ante, you know, like those farmers in kanataka, you know Please don't give us power because it will cost us our water And that's the sort of bargain a sort of message that we try to take to you know Those water dependent investments that are also part of our portfolio This is the one thing that you need to keep in mind if you manage that big Money you've got a little bit of everything. So these big universal We're called a universal owner of all these different companies and projects Because you've got a little bit of everything that also means that issues like water affection always one way or the other you can't really wait for it from it you can't wait for prices to rise You're already dealing with it right now So hopefully that makes us Less waiting for superhuman politicians and superhuman decisions Right now. We're really trying to finish the ones that don't get it Can I can I say So while you're on brisk, which I think is a fabulous topic and and there's a Comma talk about risk versus uncertainty. It's a different story because there's a lot of models that economists use to try and understand The climate for example, and they're totally miscalibrated. So that's different That means the commas don't know how much risk we're facing by the way, but when it comes to risk, I think that There's what I saw people always ask me I want to get into the water market I want to buy water and I say well you need to take into account what I call regulatory risk of political risk And that could change the value of your property Whether you're an insurance company, whether you're a water owner, it could change it overnight by a factor of 10 and in that sense the water sector is extremely Difficult to invest in because it's so unreliable to invest in and that's because of this kind of Regulatory risk that that's I think what investors look at. They say too many problems basically Let me answer. Oh, yeah, this throw the box. Oh the box. Can we try to now we can try to throw the box down child? Thank you so much for the insights and Is it working? You can talk to the box I Part of my book Exactly It's only it's 100 page books not very long. No, but it's the what you so we're so water is Uh, it's called a wicked problem. I guess on the name of the poster today Water is entirely complicated because I might talk about water and you might be thinking this Or I might be talking about water and you might be thinking a rainbow or there's this wave on the wall So water shows up in so many different ways in our human uses for example including and enjoying the environment Including water and poverty and water so in some ways We should be talking about water and prices and and uh, so It's it that sometimes you want to be talking about prices and sometimes you can't right But I said earlier about environmental water you cannot price it you cannot say you own it You don't own it. It's it's all of ours the beyond and you can't put a price on it There is no market for there's no business opportunity And that's why I say you have to have a community or political or social discussion about that. So What what people are saying is in some cases when the political failures happen Then there will be a private response that only because people are desperate for any kind of solution When it comes to climate change and adaptation to climate change, uh, or even the Netherlands with the The delta programs if if the the the government didn't collect taxes from everybody Involuntarily no one's being asked if they like that idea. They're just being the money is being taken And they're using it for infrastructure and flood defenses Then that saves many many people a tremendous amount of money in terms of building their own Escape boats and own walls around their gardens all kinds of stuff So there's a value to having a political agreement that we're all going to share this cost And that is the value of the avoided costs to everybody as an individual That's because there's a political mechanism and so on and so on in many many parts of the world Have you been to a city where everybody has a water tank on their roof? That's the private solution to a public failure And that is an example of where prices or whatever it is isn't working And there's someone who will bring a huge 250 liter tank or more to your house and put her up there and that got you paying that guy money And there's a price there's a mechanism and maybe you're collecting the water from the rain or maybe when the pump turns out Turns on once a week. So the the price mechanism is a very very Last minute mechanism for managing water But it shows up as a mechanism of feeling a gap in many circumstances of mismanagement of water And I I don't know but like I never think about the price I pay for water in the Netherlands But I think it's absolutely a crazy good value for money But the but I know the system is run on a on a financially sustainable way So in that sense, it's it's it's invisible But if you go to many many parts of the world, it's not invisible because There's this mismanagement going on and and prices won't fix that mismanagement It can help in some ways But there's many many other things like Saudi Arabia changing their price from 99 subsidy to up to a zero percent subsidy I think it did help in many ways But there's other things going on in Saudi Arabia that might actually be worth looking at also So you just fix one problem you move on to the next one Yeah, yeah, if I just may add one thing to it because you know, of course Investors don't wake up in the morning and say, okay, let's screw over a few more people and See how much money you can make of them and their big social needs Um, it's just you know, if you would look at order as a coastal defense or national defense for that matter You know, you would you could make the case that hey, let's forget about pricing. Let's just give everybody free water and let's tax All companies all all all the population accordingly There's areas where we do that and there's no profit in that in that model But but but if you really need the capital That that you know, I projected right there Um, is there ever going to be enough money in that kind of model to build it to sustain it? To make us not abuse it You know, I wonder Also investors do not necessarily well at least we do not necessarily need to invest in water We want to invest in water But you know, if it becomes too difficult, we simply would move on to the next thing so Just to maybe Comfort you in a funny way, you know that No, we're not there to to make profits no matter what of water We can make profits no matter what of roads telecom, you know anything else so If water gets too difficult, we'll we'll be out But we think we've got something to contribute And indeed it's profit based that's good You So before I was I forgot to add something that The biggest problem with building a water system, let's say that you don't have a good water system in in in europe The water systems were built in the last since 1850 let's say going forward A lot of developing countries are building it for the first time or trying to expand it or trying to keep up with Urban expansion and those those costs are absolutely massive You need to have a 50 hundred year payback period because no customer can pay that money back And if you think I'm going to get that who's going to pay that money a pension fund might be willing to pay Uh, you know to for a water extension in in Lagos in Nigeria But the political risk of never getting that money back is very very significant and in those countries They, uh, don't necessarily have functioning fiscal systems to collect enough money to run pretty much anything So a water system a road system electricity grid all those kinds of infrastructure that are not exactly private But do have a very long payback period you need to have a functioning financial system and and that is um It's not going to come from abroad if there's too much risk. It's not going to come domestically if uh, Again, politicians are more concerned about either stealing money or not collecting money Or by the way, not taxing rich people who are their friends, which is a big problem Also in the united states for sure. So, uh, why did why the u.s. Has a massive, you know, trillion multiple five trillion or so infrastructure deficit So if you can't tax your own citizens to pay these At least there's upfront costs or long-term costs and things will break down and then you have these really Half-assed private solutions coming in that are that usually again protect the rich people because they can afford them or their Or they and they leave everybody else aside, so it's like it's a very big problem and injustice and and And prices would if prices were there So many other things will be fixed on the way to get there that the world would be a better place So the prices are not the solution, but they're kind of a sign of things might work Okay, yes, it was strange to talk to a box, but uh, let me try Friendly, it's been a very uncomfortable debate for me. First because it was not really a disagreement But it was because some of the things haven't been mentioned and we've kind of had the tendency of looking Abroad on how to fix things there For me pension funds have a big role to play But that is getting out of certain. Well, let's say sectors like fossil fuels agrochemicals which are polluting the world's resources on these kinds of issues if you try to make a difference there Then we can start making bigger differences in water domain rather than investing in public utility here and there, I think Second also this idea of uh, I don't know if you I saw it a while back. It was this Video by the world economic forum about how great the Netherlands is in agriculture How stable we are and all of that Well, if you want to talk about traffic prices The reason why our Pigs are so cheap here is because we pollute the whole of the Pantanal And the Chaco region in South America. So they we can have cheap. So so we can feed that to our pigs And pollute our own ground with our own process. Yeah, exactly. So, um The whole mentality of this country is doing better than that from because they have better governments or better prices or better It's communicating vessels. So, uh, I feel very uncomfortable in having that kind of I in the sky look this country compared to the other Um, I think ways to move forward are if you're talking about governance pension funds to really play a big role Get out of fossil fuel and stop making climate change work for all of us. That would be a very good set number one Uh, the the the six or four big agrocomic chemical companies which now are ruling the world could also Have kind of a bit less of their investment. I would uh, uh, agree Uh, there is also front. They think too much money. Uh, all these big dam push that is in South America in lots of parts of Africa Because there is too much money and too much collusion of these sectors with Uh, uh elites, which uh around also by engineering companies So I I think if you want to talk about values, uh Yeah, start listening to the people on the ground who who actually feel the consequences and less about uh I've started talking on the uh, yeah, I mean that's that's what I get Okay, there's no question that, you know, externalities need to be pricing whether it's pigs and what they eat in the goes to help goes to help because of our intensive um Animal farming or what is it big farming? I think that's all that's all true and pension funds Certainly don't do enough. I don't think anybody does ever enough to fix this But we do make our baby steps We try to reduce by half the carbon footprint in our portfolio. So we do have to get out of coal Get out of fossil fuel companies and we're doing it by 2020 We'll only have 50 percent of carbon footprint in our portfolio. So all that happens. Is it enough? No, it's not never enough Are all those negative externalities priced in all these costs that we now Put on the people in in in the Paraguay Rather than here or, you know, the cost of our groundwater to be polluted now. That's all not in those prices just yet um and even though we're trying And for some we do it for reputational reasons. We do it for risk reasons We certainly don't do it for financial return reasons because these companies these oil and gas companies make a pretty good money for us But we subsidize them. So you talk about sure sure sure sure. Yeah, sure, you know, but that's different between economics and finance, right? It may make economic sense to do away with the sector just like that But financially they're doing well So, you know, we're in debt people, right? And and and I think we do whatever we can within the constraints that we face And that holds for for agriculture for mining for fossil fuels. You know, we try to reduce our footprint there We try to reduce the negatives But we cannot Force anyone to price in the externalities. That's a government job You know, and there's no running away from that Um, is that too much money? Yes, there is a lot of money And in fact, in making that is part of the problem right now. There's a ton of money pursuing very dubious projects So yes, we're trying to be critical there too But in a way we're part of it, you know, we've got those big pension savings You've got to invest them in something something that makes money, right? That may make you uncomfortable, but that's the situation we're in. We can't just say say goodbye to your pension savings We're out there saving the world How would you like that? If there is no world, then what do I mean? Yeah, but there's an asymmetry PGM PGM got 2.5 million people Depending on us for their pensions, but PGM all by itself can't fix those problems, right? So there's an asymmetry there. We can't just say to the 2.5 million Hey, yeah, we couldn't fix the world's trouble, but hey, we gave it our best shot and we did it with your money So, yeah Unfortunately, I'm going to say some things that sound awfully familiar, but uh The negative extra note so It does so that what we have so I teach I'm teaching class right now about the commons, right? And so you're speaking about the commons in terms of pollution, correct? Climate change pollution is a commons also or do we all have an agreement about the commons? So the commons is is the air the water the land we share Right. It's not that private area, but you're speaking about the There's this idea of a negative externality So someone's growing soy on their private land of the negative externality might be the pollution from the growing of the Of the soy is going to the rivers and killing the fish so the people down river Is there a version of what you're talking about? Or the people willing living in the village next door having to play The pesticides on their heads. Yes. So those are the negative externality And what that is is that somebody is growing the soy or growing the pork or growing whatever it is iPhones there's all kinds of crazy Versions of this story and they're doing it for their own private benefit and the costs fallen of the people and you just said I don't like that. I agree with you. That's a bad idea. Or do you still I'm not saying I don't like that I say I don't like that and that's where you have a lot of responsibility where you can change Yeah, yeah, I'm going to go to that. Yeah, I'm just starting one thing at a time. So The thing is is that you're speaking about how do we keep people from investing in these polluting industries oil and gas for example and the simple the whole idea of divestment which they sell their entire portfolio of fossil fuel companies is It doesn't fix the problem if Villain who will be the villain right now comes along and buys all that those shares from shell World debt shell on discount right so you have an entire industry that needs to be somehow held to Some kind of standard of regulation or behavior Whatever you want to call it and that requires guess what the government to get involved now Long ago there was a book written called silent spring by Rachel Carson And I don't know if you've read this book But I read it and I was surprised that it was not exactly what I expected because what she talked about Is the overuse of agricultural chemicals by the united states government Not the use at all of the agricultural chemicals right the use of agricultural chemicals under some conditions is a good idea The overuse is a bad idea and she was talking about the overuse the same thing with dt Which is a very good way of trying to limit the cedars and salt malaria, etc So here's an economist and you say there's kind of this middle ground between nothing and everything And so when it comes to agricultural chemicals The question is what's the correct amount to use if people are putting the chemicals on the Ground and in the air and the water and they're not paying those costs then that's too much being used That's probably one of the definitions of this and if you want that to be stopped or or or reduce then You might have a regulator that will tell that company to not do that or you might have An entire industry that's held to a higher standard If all of the pension funds in the world were held to the standard of not investing in polluting industries Then one Would they wouldn't mind that because if they were selling at least it wouldn't be another pension fund buying And they wouldn't lose air I will tell you right off to that that they would sell on individuals will buy so we're not still fixing the problem And so the the issue really that you're getting at is how do we protect the commons when in fact nobody owns it And that's the commons of the atmosphere Which is climate change. It's the commons of the rivers and the and the local Areas and every time we've ever seen actions protect the commons It is then through a government action right the Montreal protocol to take cfcs or community action the Montreal protocol the same Okay, the Montreal protocol to get cfcs out of the atmosphere and save the ozone oil Uh ozone layer it was a government action. Uh, et cetera, et cetera, et cetera So, uh, the the the market is gone and there's profit-seeking people in it that we're going to take advantage of situations And if if uh, Arthur Daniels Midland stops growing soybean and trading soybeans Then maybe it's a Brazilian firm that no one's heard of maybe it's a chinese firm that no one's heard of And they're going to destroy the environment. So in fact, we're not fixing it by attacking the the name brand companies So I think that we have to get back to this this goal of of managing the commons now I was talking earlier about the alliance for water stewardship, which I consider to be uh A talky talky place But not not not doing anything useful because what they should be doing is pushing on governments Not companies who they sign up as members. They should be pushing on governments to Keep not just the companies in line not just the international companies in line But also the domestic companies in line Which are usually the the relatives of politicians and also the local small farmers in line, et cetera So that the entire water ecosystem is protected. That's what water stewardship is about It's not about signaling out of one group and leaving out the other ones. It's everybody has to be Uh part of that same solution. So in that sense, I think that uh, your your, uh Concerns are entirely valid and they must be addressed in a way that brings everybody into the discussion And I'll give one last example which is about pigs ironically or not ironically and that is the united states Which has which was at the start of the environmental movement had the clean water act. I think 1970 1972 And ever since the clean water act and every other amendment from the clean water act Pig farmers have been exempt from every, uh, Needs necessary regulation and an economist figured out the costs of all of those exemptions would if if the farmers Clean the water just the same as wastewater treatment systems just the same as the small farmers But the industrial scale pig farmers they clean the pig extra manual stuff Out of the water it would cost an extra five cents per kilo of meat And that to me is an acceptable price But the politicians are hearing it'll cost more people will starve united states a lot of obese people So it's not actually a real issue it's turned into this joke And the joke is unfortunately on the poorest people who live next to those pig farms that are getting really terribly Polluted and getting cancer and so on so and that's that's the issue Okay, well, let's let's just go you you mentioned the water sewer system bringing it back to water And I actually would like to bring it back to water again Not not not for because I think that the theme of Uncomfort that you have I would try to I hope that we can bring it back to the water scene because there We have a lot of uncomfortable stuff Yeah, I have a question like for this debate you both looked at the larger principles on value and water And for example David you talked already about water stewardship and in your presentation you mentioned IWRM I'm wondering what a lot of you think what is new about the larger principles and value in water and how can these principles Help us in You're on topic amazing I'm not sure I can even answer this because I don't know if I've read them but I forgot that Bill trust bill protect against education I found bill to disagree with and I frankly found bill that is really new Um And you know when I was invited to this debate, you know, I thought okay, let me let me take this investor Rather extreme position that you know get the prices right and stop Stop making everything just difficult, you know But of course, you know that then David is hired to make the opposite point that yeah We need to get the governments in order before anything will work um As the larger principles You know frankly, they don't really help us what does help us is Better understanding of risk better scenarios So that in the absence of prices and perhaps even in absence of proper water governments We can still make investment decisions that work to for the common good Those are mostly the decisions of the type stop doing the wrong thing Whether that adds up to enough of a solution is of course, you know an open open question at this point, but That's all no, it's not all but that's an important part of what we can bring to the table Everything else in the bladio principles. I believe is mostly a public responsibility a government responsibility We can't replace governments nor would you want us to replace governments for that matter? Yeah, I thought that I was invited to this and I was busy. I would love to go but um But of course, I wouldn't be overwhelmed with the results. So, uh What I wrote down my first read this is Who will do this who will enforce these values? Uh against the managerial man mindset and monopolies, right? So, uh, but you mentioned I mean we brought back on the topic either you are and I think uh, you know If there's a governance issue or whatever it is the example I gave from bolivia and many many examples from From from sustainable and I I always love finding that but they're you know, they're not the news ever sustainable water management Of any scale whether it's the environment whether it's fisheries whether it's flood water It's whether it's drinking water. That's never the news because it's always working, right? So that's kind of So we're always noticing what's working. So what I would do in terms of of Water and water management is push it down to the using the subsidiary principle to the lowest possible level and Uh in in uh and and have them responsive things There's there's interesting ways of combining groups of people But the the the issue that we tend to have is a professional managerial class is very very distant from the people They're supposed to be managing water for and one example that I put on my blog a couple years ago was that The regulators should actually be elected from the community. Just regular folks not professional regulators Just regular folks would say Hey, my kids use this water We have to pay for this water And if you can convince me that your investments in the system are a good idea Then I as your regulator will prove those prices But what instead happens often is the regulators are at the Bellagio the Vegas one, right? Having some more sashimi with the other guys who are from uh, you know Whether it's the Vegas public utility or it's cal American water the private utility They're in the hand of the water company regulatory captures what it's called and They go back and they do things and and the the citizens have no idea what's going on And they so they're divorced from the whole discussion and then they have no power in the discussion And then when they want to know what's going on to close the meeting there's no minutes It's like local water management as local as possible is the most likely management that's going to help the local people And if it happens at a national scale the thing that I was fishing about in Ukraine Where they wanted to take it back from villages of 5 000 people back to Kiev which made no sense But they wanted to have more corruption. I think and if you if you keep it at that local level You're going to get sustainable water systems more often than not right if you centralize it They're too far away. They're too distant from the issue and they may not know and they have no stake in it They don't they don't drink the water themselves And and I that's why I also say that like water managers around the world should drink the same tap water as their customers Because usually they don't and that I think would start things off No price mechanism, by the way, just incentive mechanism. They might start paying more attention If I may enter this because this this idea of local water boards You know in a way this can just build on the back of that notion right that we had water boards before we even had a government Or central government at least I think that that is an interesting take on this because um, I was before I joined PGM as a deep world resource institute And I led the markets and enterprise program and I was always accused of what you said, you know, hey You guys only care about profit and To hell with everything else. Um, that's not what you said, but that was what I was told And um And of course, there's something scary about private enterprise and private investors running a public good You know, there is something that doesn't feel quite right there So you need a strong regulator and maybe the regulator has to be in that particular Um formats that indeed you have a water board representing different interests in a particular watershed But that would then include companies companies wouldn't rule it But companies would contribute it and companies and their investors could in fact at the end In that water becomes a more serious issues issue the moment investment decisions are on the line If people don't want to invest or companies don't want to invest investors don't go to places because Water scarcity is a serious problem and there's no government capable of taking it on That's a loss to all So Our argument in that markets and enterprise program was always we're not in favor of privatizing anything We just want to make these issues more urgent more immediate more relevant perhaps to our Our governments by making sure we're at the table perhaps in the form of those local water boards I think that's a great idea and perhaps and collectively you could you could agree in Small steps perhaps to go from the low-level equilibrium to a high-level equilibrium And companies I believe and investors have a role to play there I want to say one more thing about this. I know it's like the we talked earlier about risk and and Companies I'm getting on the company mindset right now companies. In fact, don't care about press water what they care about is reliable water supplies and if They can get reliable water supplies. They are absolutely or reliable Almost anything they're absolutely willing to pay it because water is just an input for almost every company and besides An agriculture where it's a very large volume input, but still a very very tiny percentage of their cost input they will trade many many concessions for that For for reliability and And running out of water is extremely expensive, right? So that's a major problem for companies they will they will you know have to shut down factories and so on so The the last group to ever complain I think about a regulation that costs more money Or a infrastructure upgraded cost more money the last people to complain about that will be companies because they can price it Into their existing cost farmers exactly the same Dutch farmers you could you could drink the water the canals with enough regulation and Dutch farmers would be fine with that Because everybody would be subject to the same system. So it's it's uh, it's their and companies And I've had this argument Nestle multiple times about their bottle water operations I have said you must push for a deposit on small water bottles or any plastic water bottles because It's a disastrous public relations Aspect and they keep saying this is so terrible. They're like, oh, we're trying to engage with everybody It's like they're just so full of shit. I said this straight straight to the CSR guy Straight to his face because they absolutely can't stand the idea of paying of a cost of a penny more But actually when you do it No big deal, right? So when the Dutch banned the free plastic bags The country didn't collapse right plastic bag consumption dropped by 80 or 90 Congratulations. It wasn't that hard. So I don't think that I think any company says it's going to cost us too much Is just lying But they have to be able the companies have to be able to go to governments and demand that and and they will not do it Individually because they won't take that risk But if the alliance for water stewardship hint hint does it or the world economic forum hint hint does it Then it would actually Push that that dial up forward. Don't ask companies though to stick out their net because they won't Well, thank you very much because We we try to This debate can continue But we'll try to make an end to it because we don't have something other maybe something else and water which is quite nice actually But coming to to what have to be the instruction we ever come to Discussion about how do we get water Highland general who gets these moving and they would say, okay, we should have prices right And we should have government's right. That's government's right That's one of the two things which and then we find out that they were closely together But still the thing come up and I think we discussed a lot of practical solutions to find out how we motivate this process and that's something I would like to To Very interesting to hear your comments about the larger consoles and we take them into account when we're working on this But the basic thing is how do we motivate this process of getting both? the governance in place as well as the price in place and Price is not as something to read it, but we mentioned also the price is something The private sector comes at the end because the government is not right in the right place So maybe we can just summarize it very concisely. I mean and Jump to another part of this meeting and that is the drinks somewhere, but So I would like to thank you very much for staying here for giving input And there's time after this to come up with additional questions and discussion. Thank you Thank you Yeah, so thank you very much for coming so the world is going to be in the front of the tent, which is like a Just loads of YG. Just a few steps to the left and I have some tickets So you can make like two years the piece of house Yeah, so yeah, so Well, hope to see you for a nice after a bit. Thank you