As we get into the second half of 2022, I’ve been musing on recent progress at OxEO. Water is a curate’s egg. Everyone has an instinctive, almost visceral reaction to the prospect of ‘running out’ of water. But where this outcome seems remote or surmountable, it causes barely a flicker of concern. The price that businesses and consumers pay for water remains very low, in relative terms, across large swathes of the planet. Today, that makes for a stark contrast with energy prices and the cost of living crisis.
Companies and portfolio managers are rightly focused on transition plans to net zero emissions. Greater water scarcity contributes to increased CO2 emissions in many ways, though louder narratives around decarbonising hard-to-abate sectors tend to dominate the discussion. For this and many other reasons, water risk remains something of a niche interest.
This is obviously not helpful when you’re trying to build a business around measuring and managing water risk. Our plan was to have raised a seed round by the first half of this year. That we have not done so has very little to do with the market downturn, and everything to do with our inability, to date, to demonstrate burgeoning and unsatisfied demand for water risk products.
So, are we barking up the wrong tree? Are we too early? Too late? We’re running a pretty lean ship, but can’t go on forever without significant customer validation. On the plus side, we’ve already had some excellent traction this year. We worked with the top-rated mining analyst team at the investment bank Jefferies to develop a first-of-its-kind report assessing water risk facing the thirsty copper mines in Chile in Peru. Decarbonisation means more electrification, and secular demand trends for metals like copper and lithium have wider resource implications. And right now, we’re working with the European Space Agency and the United Nations on a new hydrological drought index that could potentially enhance the livelihoods of millions of people. Our research and methods are at the cutting edge, and validation from these early customers has been invaluable.
But we need a breakthrough product. Something that our future customers had no idea was possible, and once available, can’t do without. Water is the world’s most poorly managed resource. Horribly mispriced, and used inefficiently nearly everywhere. This is despite the fact that 2 billion people still do not have access to safely managed drinking water at home. Two. Billion. People. When we set the company up, my co-founder Lucas and I were motivated by the belief that this was - at least partly - a capital misallocation problem. Capture the externalities, we figured, and remove information asymmetries where we could. This would support ‘value discovery’ and ultimately more sustainable capital allocation. We remain of this view. The onus is on us to figure out how to do this.
We were amongst the recent winners of a competition run by the UK government’s innovation agency, which gives us a bit of funding to work on exactly this. So I’ll be spending this summer talking to anyone who shares an interest. If that’s you, please get in touch.