Civil society protests water's emergence on the stock exchange

A group of civil society organizations is calling for the financialization of water to be stopped and plans to take its protestation at the launch of the world’s first water futures market to the United Nations special rapporteur on the human rights to safe water and sanitation services.

It’s important to denounce the financialization and commodification of water, Marion Veber, Indigenous people program officer at Fondation Danielle Mitterrand, told Devex. “Water is a common good so it cannot be privatized or [be] an object of speculation.”

FDM, End Water Poverty, and Coalition Eau spearheaded a petition earlier in the year, pushing for public authorities to make listing water on the commodity market illegal and for people to refuse control by financial stakeholders.

The petition garnered support from over 560 organizations and the next step is to take it to U.N. Special Rapporteur Pedro Arrojo-Agudo and try to lobby United States public officials on the issue, said Al-Hassan Adam, international coordinator at End Water Poverty.

The outcry follows the launch by CME Group — an American global markets company and financial derivatives exchange — of the Nasdaq Veles California Water Index futures in December. Futures are exchange-traded derivative contracts that lock in today’s price of a commodity but for delivery in the future. A futures market is where futures contracts are bought and sold.

In the U.S., farmers pay for the water they extract but there can be volatility in prices, depending on levels of drought, Adam said. The index works by setting a weekly benchmark spot price for water rights in California so that farmers — and other California water users including municipalities, water districts, and businesses — can protect themselves from having to pay potentially higher prices in the future by buying at today’s price.

The CME Group said in a press release that the index will help agricultural producers plan ahead for changing costs of water they may need for large-scale irrigation while allowing manufacturers to better navigate business and financial risks owing to water price fluctuation.

In theory, futures contracts should help to combat price volatility, provide security, and better balance the competing demands for water supply that’s threatened by droughts and floods, but because it’s going to be lucrative — and with climate change, a determining factor on water accessibility in the region — Adam said there’s an incentive for those who control the prices to jack them up.

If the price of a futures contract rises since the time of purchase, speculators — individuals, wealth management firms, hedge funds, or independent companies — make money.

“In the context of this widespread water crisis, quality water is more and more sought-after yet increasingly rare: it is an ideal financial investment for speculators because everyone needs it to live and nothing can replace it,” the petition says.

As a result, municipalities are having to hedge their limited resources against their access to water instead of focusing on expanding services and improving water quality, Adam said. “It’s taking investment away from the sector and putting it into private hands.”

“And you don’t know who owns what because all derivatives are behind multiplications of transactions. There is no one register that tells you who is paying for what and who has hedged a payment against what investment,” Adam added.

At the time of the index’s launch, Arrojo-Agudo said that, as a public good, a price couldn’t be put on water and that a futures market risks marginalizing small-scale farmers.

Water as a human right

According to a social media listening exercise conducted by AquaFed and Public Services International, under the coordination of Food and Agriculture Organization of the U.N., water as a human right and injustice in access to it are among the biggest concerns people have around water.

In 2010, the U.N. formally recognized water and sanitation as a human right, but commodification in all its forms nullifies this right, Veber said.

Only in the U.S. for the time being, Adam said civil society wants to stop water futures trading before the idea gains traction elsewhere. “The moment it takes strong ground in the U.S. it could be exported to other countries very quickly … We’re not going to allow this to take root in global markets,” he said.

While this particular type of financialization is new, there have been other examples that have threatened water access and quality. In Chile, a fully privatized water system means rivers can be bought and sold. Depending on how the owners choose to use the resource — for mass-irrigation of avocados or to produce commercial hydropower — it can contribute to the water shortages others are already experiencing.

The organized nature of this new index in the U.S. and involvement of big money makes it very concerning, Adam said. While the impacts of water privatization have been seen before in several countries, this marks a new low and major threat to people’s rights to water, he said.

But this instance of privatization is far removed from other private sector involvement and Neil Dhot, executive director at AquaFed — the International Federation of Private Water Operators, doesn’t want the two issues conflated.

Members of Aquafed are private operators brought in to operate a service on behalf of a municipality and are under public control, Dhot said. “That has nothing to do with derivatives on the stock market … I understand the fear and sentiment these campaigners have, they are scared about it. And then they conflate it with privatization but there is no link there.”

The complicated nature of the market has led to possible confusion but equally, Dhot said he suspects a deliberate move to conflate the issues together because many don’t want private companies in the space at all.

“I challenge anyone to actually show me tangible evidence of a concrete link between trading on water markets and the specific role that private operators do,” Dhot said, adding that water privatization or private operators were not highlighted as concerns from the wider public in the recent listening exercise.

For Adam, there’s a relationship between people buying water rights and people insuring against the price of that right. “Although they are separate trading, they are all one and the same privatization, market-driven, commodification, financialization drive,” he said.

Dhot warned that if “silly things that aren’t really there” continue to be mixed into the discussion, they risk losing the futures market argument.

“We know there could be backlash from the private sector. We’re ready for that,” Adam concluded.