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Rathbones Asset Management is warning that water stress, ageing infrastructure and land degradation are becoming material investment risks for companies across agriculture, chemicals, industrials and consumer goods.
The follows a summer in which low water levels on the Rhine disrupted one of Europe’s most important freight routes, while extreme heat and drought put pressure on crop yields across the continent.
Rivers, logistics and the wider economy
In late July, water levels on the Rhine fell to their lowest in roughly 36 years, prompting concern over the potential for force majeure at BASF’s flagship Ludwigshafen chemicals site. The episode underlines how quickly physical climate risks can disrupt production, transport routes and input costs.
David Harrison, Head of Sustainability, Rathbones Asset Management, said: “The investment case is no longer just about who uses the most water. It is about which companies understand their exposure, have credible plans to manage it, and can adapt as physical climate risks become more visible in day-to-day operations. That distinction is likely to matter more for margins, continuity and long-term competitiveness.”
Chemicals sit upstream of packaging, automotive components, construction materials, fertilisers and pharmaceuticals. When supply tightens, cost and availability pressures can travel quickly downstream, feeding into margins for industrial businesses and pricing for finished goods.
Water-intensive consumer sectors, including beverages, apparel and processed food, also face direct exposure to scarcity. As pressure builds on stressed regions, companies may face not only higher costs, but greater scrutiny over water use and supply-chain resilience.
Ageing infrastructure: the risk sitting beneath our feet
Rathbones Asset Management says the risks are not limited to acute weather events. Ageing water infrastructure is creating a chronic pressure point for companies and municipalities, with the American Water Works Association estimating $2.1–$2.4 trillion of US drinking-water infrastructure investment needed through to 2050 and a funding gap of roughly $56.6 billion a year [1].
Globally, water infrastructure investment may need to more than double, from around $380 billion a year to $13.2 trillion cumulatively by 2040[2]. With roughly 30% of treated water lost to leaks before reaching customers [3], Rathbones sees a multi-decade demand driver for companies providing leak detection, smart metering, treatment and distribution solutions.
Food: what the 2026 heatwave revealed about agricultural yields
Agriculture accounts for roughly 70% of global freshwater withdrawals [4], making it the sector most directly exposed to water stress. This summer, the EU’s Joint Research Centre revised crop yield forecasts down by up to 14% against the five-year average and warned that crop failure was likely locally across several European countries [5].
France, Europe’s largest grain producer, illustrates the pressure. Its agriculture ministry expects the 2026 maize harvest to fall 35% year-on-year to around 9 million tonnes [6], while vegetable growers and dairy farmers have reported steep shortfalls linked to heat stress and drought.
More of this to come
Harrison added: “There is a risk that water and land-use pressures are viewed too narrowly, rather than as structural issues that can play out over many years. These risks are unlikely to move in a straight line, but we believe investors should pay closer attention to how companies are adapting.”
Crop losses from droughts and heatwaves across the EU have tripled over the past 50 years [7], while insurers are recalibrating models to reflect more frequent extreme weather. Rathbones Asset Management says land degradation is compounding the impact of each successive heat event, intensifying the need for investors to assess resilience across supply chains.
What this means for how we invest
Rathbones Asset Management says the theme reinforces its preference for companies providing enabling technologies and services, rather than only the most obvious beneficiaries. These include businesses involved in water efficiency, monitoring, treatment, distribution and agricultural resilience.
Harrison concludes: “We favour engagement over blanket exclusion, pressing companies to disclose water and supply-chain dependencies and to invest in efficiency. We believe this approach can help identify businesses better positioned to manage long-term physical risks while supporting the transition to more resilient systems.”
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