Right, we're gonna get started with our next panel, and this one is on water, something very important to all of us and to the world. Challenges and investment opportunities in not just water, but reliable, clean water. There you are. We were waiting, we're waiting for you. Ah, you need to get mic'd up on the other, you need to get mic'd up on the out there. Water remains a topical area from a number of different sustainability vantage points, for the markets. Water lies at the cross-section of several industries, and as such, an essential and oftentimes overlooked natural resource, that is a critical input, whether it is sustaining critical infrastructure, maintaining industrial production. It just checks a lot of boxes, as we all know.
At the same time, water, though this fact is sometimes taken for granted in developed markets, is very critical to providing a sustainable and safe living standard for communities across the globe. And thus, in this context, the ability to provide, as mentioned, reliable, clean water is a key consideration in the sustainability spectrum. With all this in mind, we've established a diverse mix of water sector leaders and experts here before us, both from public equities as well as the private investment side of the markets, and we look forward to a wide-ranging discussion of critical topics in the area, from technology to demand to policy, as well as broader outlooks for the sector.
Our group of distinguished speakers in no particular order, in fact, we'll start with the middle here, includes Patrick Decker, President and CEO of Xylem, a bellwether $22 billion market cap, water equipment services, and infrastructure supplier. Matthew Diserio, President of Water Asset Management, a New York-based global investment fund focused solely on companies and assets that ensure water quality and supply. And to round out our group, Susan Kennedy, Executive Chair of Cadiz, a water solutions innovator focused on providing clean water, safe, reliable, affordable in, in California. So welcome to, welcome to each of you. We are going to kick it right off with Q&A because there's a lot to, a lot to talk about. And Patrick, let's, let's start with you. The challenges to provide clean, reliable water globally continue to become front and center.
Can you compare and contrast how you see the opportunity set, risks, ability to execute in the U.S. versus Western Europe versus emerging markets in which Xylem is looking to grow its business?
Sure. Well, thanks, Brian. Thanks for all, for your interest in joining. I'll try to keep my comments brief, which is challenging because it's such a passionate topic for, for all of us, I'm sure, and we all have a lot to say about this. But I'd start with the three key challenges that we see as Xylem, and we operate in 150 countries around the world. You know, half of our... So 40% of our business is water utilities, 40% is on the industrial or the business users of water, and 10% are in what we call the building solutions and ag space. So we get a pretty good purview of what's going on around the world. Three key themes that are consistent. You know, there are a few hundred watersheds around the world.
Most people don't know that. While each watershed is unique and different, they have pretty common challenges that are facing them. The first is scarcity of water, and when we talk about scarcity, most people immediately go to a household level. You know, they think about poverty, they think about, you know, deserts. But that's one issue, but scarcity is also an issue for businesses that are operating in water-stressed environments more and more. Given climate change, you know, that water stress is creating economic losses, where for a business, the value of water is not what they pay per liter or gallon, it's when they don't have it, and they have to disrupt operations, and they lose revenue, and they lose margin and profitability.
When it happened on a sustained basis, they end up having to relocate their plant, and that impacts communities and jobs. Scarcity impacts all of society, and it's getting worse. I'm not going to throw stats of fear that are out there. I'm sure the crowd kind of knows many of those. Second is resilience of infrastructure to climate change. When you think about the large majority of natural disasters over the last five years have been water-related, and it's had huge damage to water infrastructure that is there, that impacts communities, and of course, then it has ripple effects of deciding. The third, though, is, okay, we all know that, and then we hear these numbers, like $22 trillion required. You know, ask somebody tomorrow, it'll be $25 trillion or $15 trillion, or everybody throws the numbers around.
Well, I'm not sure where the $22 trillion is going to come from. Bottom line is, we don't need $22 trillion because the innovation, the technologies exist today to solve these challenges at a fraction of that. They're typically involving digital enablement. Digital is not a strategy; it's a way to enable outcomes, helping a utility or an industrial customer build infrastructure in a much more smart, efficient, affordable way, versus the old school way, large engineering, capital, big works. That's still needed, but not nearly what it was before. I can go through a litany of those technologies, but to your question, Brian, about by region, what we see is the challenges are much the same. We hear more about them in developing markets.
It plays in the narrative of poverty, but we see the same challenges here in the U.S. And, secondly, what we find, at least within Xylem, is there's a reason why emerging markets, developing markets for us, Asia, Middle East, Eastern Europe, are growing at two times the rate of developed markets, is because they don't build new dumb infrastructure.
... Whenever I lived in Thailand many years ago, they didn't build landlines for phone, they went right to cell phone. The same thing happening around water infrastructure. So they're leapfrogging the technology, whereas I would say here in the US and parts of Europe, we are still dealing with aged infrastructure, and you got to remodel, refurbish. And so there are some challenges associated with that. But again, technology has a big role to play in addressing that. So sorry for the long-winded answer.
No, that's great. And, the leapfrogging infrastructure point is a really interesting one, and it probably applies to more than just water in some ways as well. Susan, similar question to you, but for California. What do you think California needs to do to improve water reliability and availability, and what role do you see Cadiz playing in providing those solutions?
I'm going to say I agree with 99.9% of everything Patrick just said. I'm going to take issue with two things. One is we don't have a water scarcity problem. We have as much water on the planet today as we've had for four billion years. Water does not leave the planet. We have a water access problem, and it's because of infrastructure. 100% because of infrastructure. If you look at California... And this is a global problem. If you look at California, our water, drinkable water for the human race, was designed by the Romans and the Egyptians and the Chinese about 4,000 years ago. It's snow melt.
Snow melt goes down into the and it gets into the rivers, it gets held in reservoirs that we build, and then it percolates into the ground, and that's how humans access clean water, potable water. Problem is, we're losing our snow melt, right? The snowpack, California is ground zero in the U.S., but the Southwest, basically, the Sierra Nevada is the major source of our drinking water. Over the last since 1950s, the snowpack in California in the Sierra Nevada has decreased by 23%. Steady trajectory. It is not going to reverse. Scientists are saying that the snowpack in the Sierra Nevada will be gone in 25 years. Gone. Same is true for the Rockies in Colorado. 20% reduction over the last 7,500 years. It is not going to change.
It's going in that direction. You lose the snowpack, that means you won't. And the snow melt is happening not where it was designed. Snow is now melting in the southern Sierras, where we don't have our reservoirs built. The atmospheric rivers we're experiencing are happening on the coast, not happening in the mountains. So we have a massive amount of water and no place to store it, and water is the most destructive force on Earth. What's happening with the violence of our changing climate is that, you know, Katrina in Louisiana was the calling card for what's now happening around the globe. What happened in Libya just now, where two dams failed. Our system was designed with rocks, cement, rebar, and dirt. We've got 400 miles of canals in California.
The California Aqueduct, 200-foot section of it was destroyed two years ago. That would have been the source of water for all of Los Angeles. The California Aqueduct is... that was the LA Aqueduct. California Aqueduct, 400 miles of dirt and cement, 1,000 miles of dirt levees up north. The entire water source for Southern California is now one storm away from losing its source of drinking water. So the solution- I agree with everything Patrick said about the solution is... Yes, there- first of all, we're going- we have a $2 trillion-- there's a, we're going to spend $1 trillion in the next 20 years in North America alone in terms of water infrastructure. And it's spent by public utilities, and it's spent- and they are funded through ratepayers, right?
But there's a $2 trillion gap over the next 20 years. And while everyone knows our infrastructure is aging, and we haven't had to invest in it because they just deal with the leaks. We lost $7 billion in water in leaks alone in the U.S. in 2019. We can't do that anymore. And now what's happening with the violence and the weather, when you have, you know, rivers through the subways of New York, is the systems that were designed for storms that are long gone, now crumbling. So you're going to see that $1 trillion spent, and you're going to see another $1 trillion probably spent in emergency funding. And so it's the, the...
What needs to happen is storage, storage, storage, and being able to move water in a way where we're not losing it and we control it, because all of our flood control systems were designed to move water away from cities and farms and out to the ocean. We're losing it to the ocean. So it's an infrastructure problem that can and should be solved by storage and by the technology to be able to manage our groundwater.
Great, thank you. Let's get the investor perspective here. Matt, tell us how Water Asset Management is positioned in public and private opportunities, and how do you see the opportunity set, risk, returns, whether it's California, the U.S., or elsewhere?
So we started Water Asset Management two decades ago. We invest exclusively in companies, assets, equities, globally that ensure water quality and water supply. You know, the core belief is that scarce, clean, reliable water is the resource defining this century, much like oil defined the last century. And while these problems are absolutely being described in an accurate manner, all water problems that we've seen on Earth, regardless of size, are solvable. It's a very interesting characteristic to this very colossal set of problems. The solutions depend on where you are and what the problem is, but ultimately it boils down to capital, water industry confidence, and then, most importantly, the will to act. And what we do is we allocate capital to companies that are basically providing all three of those key factors and doing it through ...
Companies that are either investor-owned water utilities, wastewater utilities around the world, companies that make the pipes, the pumps, the meters, you know, the things that Xylem does, we're shareholders of Xylem. Companies that are involved in all different kinds of water-related technologies, and then we've got a very well-developed practice on our private equity side, separate team, that does water resource development. And we do that in the Southwest. We're actually an investor in, in, in, in own a piece of the Cadiz project. And but what we do is directly is we own tens of thousands of acres of farmland, where the best water rights are typically flood irrigating forage crops.
We implement very large-scale water conservation programs with that, those assets, through rotational fallowing, more efficient irrigation, and now we've launched a large crop switching. So we're going from high water consumptive crops to low water consumptive crops, conserving significant amounts of that water, and then we're in a position to, through compensated voluntary water conservation programs, to release or even sell that water to what is sometimes referred to as higher beneficial consumptive users. So we've generated, you know, very solid, non-correlated market-leading returns with a lot less risk, a lot less correlation, in all of our strategies, and again, we're here for sustainability purposes, with very clear, simple to understand, definable positive metrics of positive impact.
Xylem, for example, does a great job reporting their data in terms of positive impacts, and I don't have it all on the top of my head, but it's billions of gallons of water treated. It's billions of gallons of water conserved through leak detection and repair. And so we were talking last night, at, you know, it was a great session last night. I don't know if everyone was there, but, you know, just about the complexity of ESG reporting and all of the myriad acronyms that are being required for work. Water investing is impact investing, period. And the metrics, the KPIs that the companies deliver are very straightforward. We gather them as best we can from all of our portfolio companies.
We report them to our shareholders, and we don't have to. By being a water investor, we don't have to get lost in the complexity, ambiguity, you know, challenges around all the myriad reporting, although we do it because we've got a U.S. ESG fund that is, you know, requires that reporting. But it's not what... It's not the; the strategy is not driven by that. It's driven by very simple KPIs. And I would just, the last point I'll make before I hand it off is, you know, climate. We're here talking about climate-related issues. The conversation around climate historically has been focused primarily on emissions, on carbon. Obviously, very important. Transitioning to a low carbon economy is very, very important. However, when the recent climate change is bad, two words: intense. It's drought and flood, and the intensification of drought and flood.
That's why climate change is bad. That's why we don't want temperature to go to 2 degrees. We're trying to hold it at 1.5. Drought and flood are addressable by the companies in my portfolio, the companies that are sitting up here. And we need to expand the conversation to be more balanced, to include water along with emissions, water along with carbon. And when everybody talks about, you know, renewables, batteries, electric vehicles, I mean, this is, you know, all very important. It's all climate mitigation. Those are investments to mitigate climate, climate for the future, okay? Climate adaptation is water. It's investing in companies that make pipes and pumps and meters, develops water supplies, technologies associated with monitoring data and analytics. That's climate adaptation. We need climate adaptation as much as we need climate mitigation.
Climate adaptation is now. By the way, the businesses that are in climate adaptation, i.e., water, they've got more sustainable, inflation-protected, non-correlated pricing power than companies in almost any other industry that I've ever looked at. So it's a great way to make great money while having very positive impact. And, you know, our returns, we've been, we're very highly ranked return profile for almost two decades, and our stock picking is quite good, and I'm not going to get into that. But the main reason is because we're owning stocks in the water industry and avoiding stocks in other industries that are, quote, “ESG,” but that aren't necessarily as good a business as the water industry. I hope that, kind of-
That's, that's great.
Great.
I was gonna move right on to a technology question, but
Sure.
Yeah, I got-
What Matt just said is super, super important. When you think about what's happening, I would have just add fire to your other, to the example of one of the, what climate change means today in terms of crisis.
I'm glad you brought that up.
And water, and it's about climate adaptation. That is the immediate... Everyone talks about emissions in the long-term policy, but the immediacy is, and that the $ trillions you're talking about, that's, we're talking about the next 10 years of immediacy, and it, and climate adaptation is the key. And if you think about water and fire and flood, it underpins the entire housing industry, it underpins the entire insurance market. I mean, there is, there are so many multi-trillion-dollar impacts if you don't manage your water resources.
We've recently started a company with one of our portfolio companies that is called Wildfire Water Solutions. And it basically is a company that delivers hundreds of thousands of gallons of water per hour over many miles and over land, along with millions of gallons of storage, with using very rapidly deployable tactical water systems. And what we're able to provide is literally 30 times the amount of water to the wildfire zone at 5% the cost per gallon. And the implications around wildfire suppression could be game-changing. The implications around wildfire prevention in the wildland-urban interface could be quite impactful.
The implications for the insurance industry that's fleeing the West in, you know, en masse because they don't want to underwrite that risk anymore, we may be able to have an impact on the industry's ability to assess risk and ultimately come back and underwrite. So again, all water, all the time.
I just appreciate the paid commercial advertisement. Seriously, I mean, I think these intersections you're talking about is where technology comes into play, but also where, you know, having a platform, you know, not being a single-point solution company, comes into play. Because customers and communities, as they are coming to grips with the reality of their manifestation of water challenges or climate adaptation, they don't know where to go. And they don't want to deal with 25 different people to come in and solve a problem. And we, as Xylem, are not going to be everything to all people. But when you have a big enough platform, you kind of have... You kind of know the network and your neighbors.
If you're a company with a purpose that says it's not just about creating economic value, it's about social value, and, you know, your people want to do the right thing, they know who to bring in. So, you know, we recently had a customer, a large refinery, I won't mention who it is or where it is. They had a major fire, and the whole thing was going to go down, and they were, their solution, because they couldn't get access to water, in a water-stressed area, was to use foam, which happened to have, of course, PFAS. I'm sure we'll talk about PFAS later. But, you know, with our capabilities with this recent acquisition we did, our teams came together.
Within 24 hours, we laid 2.5 miles of pipe and brought in water from an area they didn't have access to before, and put the fire out within 24 hours, versus using foam. It's just I mean, a real-time example over the last month of people I hate when people call it the water sector. There's no water sector. Water runs through society and economy in ways that we all kind of know here, but I think it's only recently that parts of the world are beginning to come to grips and understand that water is not one thing. It's part of everything.
Patrick, I was going to ask you on technology, but I may rephrase the question to how you see Xylem's differentiation point relative to other players in the space, either on technology and innovation or on implementation and execution?
I mean, there are so many... It's a great question. There are so many innovative solutions that are out there already and being developed every day. And part of the reason we created what we call Xylem Innovation Labs, which is early stage, an internal, venture capital fund, which is not really about the money, it's about the knowledge and expertise, is to create a lighthouse effect. You know, there are a lot of entrepreneurs and innovators that are out there around the world that believe they've come up. They have a passion to solve these issues, you know, especially younger generation. They want to be part of the solution, but they don't know where to go. And we're not the only game in town, by any means.
But I think the larger the platform you have and the clearer you are around what we believe the challenges are we're solving, it makes it easier for them to engage. We don't get all of them. We don't necessarily need to work with all of them, but we learn a lot through that process, and they learn a lot. A lot of these things aren't. They won't be commercialized. You know, they're not scalable. You know, we can't have a portfolio of a whole bunch of, you know, myriad of bespoke solutions. Not scalable. So, but you find those ones that are, and, you know, you inspire, and you move them forward. So I think we have an advantage there to some extent, in that people see that we're building a platform, which means scale globally. That's one.
I think, too, I really believe, and I know every CEO will say this, but I, I, I think purpose, I think culture and climate matters. I really do. I, I think that people want to believe in something larger than themselves, and they want to know that the organization they work for is not just about the economic value. That has to happen. That's like my mom always said, "Son, you've got to eat your vegetables before you get dessert." You've got to deliver your numbers and generate a return, but it's how you go about doing it. It's the other things that you do while you're doing that. It's the community service. It's being involved in the Thai cave rescue years ago, and not advertising it, not talking about it while you're doing it, but afterwards.
It's getting involved in disaster relief efforts around the world, and building a capability. Those things matter at this point. In this crazy world, this high-stress, tight, strong world, people want to have a soul in something. We got great engineers. All companies have great engineers. We have great technologists. They'll smell out the bullshit in terms of what works, doesn't work. That's fine. Every company has that. But I think you want to be a draw. You want to get the best number at- bats of opportunities that are out there, and I, I feel very good about where we're positioned. We don't do it ourselves. We have partnerships with academia, you know, we have a couple of venture capital groups that we're invested in, that we get first look at.
You know, we have our eyes and ears open, pretty much around the world, because most of the ideas don't always come out of the U.S. Breaking news, you know, there are many other countries around the world that are far more innovative because water is a critical national resource, and it's a critical national security issue. So we know Singapore, Israel, I can name a whole list of countries that have tremendous, tremendous, you know, incubation opportunities going on, and coming up with amazing stuff.
Susan, can you take us through the water conservation and storage project you're pursuing in the Mojave Desert, and what you're waiting for are the key catalysts for implementation from a government approvals front?
I have to agree with everything Patrick just said. Again, I swear we didn't practice this. But, you know, at Cadiz, we're an asset holder. We have several assets out in the Mojave Desert in San Bernardino County in California. About 45,000 acres of land with the confluence of three major watersheds that flow, has water flowing under our property. We have more water under our property than in Lake Mead and Lake Powell combined today, and the water is evaporating through the dry lakes there. It's not going anywhere. We have. So the assets we've developed are water supply, water storage. Our aquifer can hold 1 million acre-feet of stored water.
Conveyance, we bought a pipeline from El Paso Natural Gas that runs 200- that was retired and runs 220 miles from our property and connects to all the major water infrastructure in California, and that will be the first to convert that to carry water. And we also have technology. We've acquired a company that has water filtration technology to deal with arsenic, nitrates, PFAS, and all the chemicals. And what we provide now is a holistic suite of solutions. So because it's you, there is no one-trick pony anymore, not with an industry like this. And if we have to be able to deliver potable water, we have to be able to deliver the water.
It doesn't make sense if you just have water, you have to be building the pipelines or the canals to move the water is probably the single greatest barrier to access to water. So we're being innovative in terms of how we do that.
Great. So I guess if there's this water challenge, and people don't realize that they're going to need it until they've lost it, if they realized it, they probably would be paying for it already if it were cost efficient. So this brings us to a cost discussion of what is the... It's not green premium. Is it clear premium, or what is the effective, premium that customers are going to have to pay for for today's technology? And then maybe where, where is innovation, where could that take us in terms of bringing costs down? Maybe, Susan, we'll start with you. As you think about what the cost would be for your reliable, sources of water for the communities that could benefit from it in Southern California, how are you thinking about what that would mean for, for, for customer bills?
It's a, it's a great way to phrase the question. So I, my, my other hat in past life was a policymaker. I worked for, Governor Arnold Schwarzenegger, and I was on the Public Utilities Commission, which regulated investor-owned utilities, including water. And it's, the, the cost question comes down to, first, the people who pay for it today are the end users. And so the, the way infrastructure gets built and water supplies get built is through a combination of grants and funding from the federal government, but it mostly is paid for by the end user. So it's a very laborious process over lots and lots of time. Today, it's raining out, you know, cats and dogs, right? Water's free, literally free, and all the agencies are doing they can to scoop it up and put it into the ground and save it for the future.
So the spot market for water goes from 0 to $3,000 an acre-foot in a matter of a week in California. But the value is really in the long-term, reliable supply. And up until 2 years ago, there wasn't a question about long-term supply. But what happened in the last drought in the West was that the major sources of water from, like, the Colorado River and the State Water Project both went into shortage at the same time. That was never supposed to happen, and it sent a cattle prod through the entire industry in the Western United States because now they know it's going to happen again. You cannot build a housing project in California if you do not identify a 30-year supply of reliable water.
So no one can get a permit to build new housing in California if you cannot identify a long-term supply of water. Value of water, it's, it is the market rate. It's- water has gone... The value of water supply, long-term supply, has gone up 5% roughly over the last 50 years without fail. Spot market goes up and down, depending on the weather, but, but this, it has gone up at a 5% steady rate over the, over the course of the last, and it will only go up from there as the infrastructure costs get bigger.
Can that rate be maintained as opposed to an accelerated rate of increase and give you the rate of return to underwrite the projects that are needed to get to customers in places like San Diego County?
It will only increase, right? It will only increase.
I'm gonna. If I can just jump in. I'm gonna—I'm not challenging the overall premise because I agree with you directionally. There will be, you know, demand inflationary impact. When I talked about earlier about the ability of technology to get rid of this, whatever, $1 trillion-$22 trillion globally price tag that's out there, I'll give you. I'm gonna give you one example that we've got many case studies of this, and we're not the only company that does this. Not a Xylem advertisement. The city of South Bend, former Mayor Pete, now Secretary Pete, had major stormwater overflow flooding problems, St. Joseph River, like so many communities around the U.S., so many EPA consent decrees that are out there, that are billions of dollars, that communities don't have the money to pay for that.
They've been kicking that can down the road for a long time, because people think about South Bend as, oh, Notre Dame, it's this wealthy community. It's not. You know, I come from Indiana, and these are just good, hardworking folks that they can't afford to see a big increase in their water bill. So, one of the companies that we acquired a handful of years ago went in there, and we've now been leveraging this capability. The case study was they used technology to build a digital twin of the entire water system of South Bend and how it behaves during a storm event. And in doing so, they turned the lights on, because most of our utilities around the U.S. don't have visibility of what their existing infrastructure is at a, you know, meter level. Like, where is it?
It was built 50, 60 years ago. They did that bottom-line answer. It was gonna be about a $750 million-$800 million price tag to meet the Consent Decree. They're doing that now for about $250 million. Is it more money? Sure, but it would have been a hell of a lot more money otherwise. There are other situations, reference cases we're showing, where there were utilities and cities that were gonna go do something, and, you know, just because infrastructure's 50 years old, I mean, I'm 59, doesn't mean it's old. Many of our communities, they're going around using old data to try to predict where there might be a leak, and they'll go dig a pipe to see whether... Is the leak there? Well, no. We have technology, and others do, that they can now go out and model their systems.
They can actually use predictive AI based on tracking to say, "No, we're not gonna guess where the leak is. We either know where it is, or we can predict that within six months or a year, it is likely, based on pressure going through the pipes, it's gonna leak." So now, and it's good for the environment, by the way, you got less truck rolls going out, just checking on stuff, but you're saving a hell of a lot of money, and you're avoiding the dig that goes on. That's not even a cost. That's not a reduce the cost inflation, that is avoid the cost that's out there. These technologies exist, but to your point, you got to have the government's will to go do it.
I can sit here all day and talk about what's possible, and we'll have community by community try to go do something, but this is now, okay? I mean, time matters at this point.
When you have industrial customers, you have utilities customers, some are in places that are higher wealth, and some of them are in places that are lower, some are in the U.S., some are in more emerging markets. What's the willingness to commit capital to projects, and how would you characterize that, and where you see it's changing, and how that can drive, how that can or can't drive growth?
I will avoid the politics on that, you know, the social economic aspect of that, because it differs by community. It is clear that, in my view, in our experience, the largest, the most highest impacted communities across this country and the world are at the lowest economic rung. It's a fact. Not everywhere, I'm just saying, when you look at the aggregate, and there are reasons for that, that we could get in long time on, but it's a reality. That's also where the pricing pressure comes into play. And there are utilities that are really good at using, you know, lower the meter, reduce the flow, lower the water bill, help people get through.
I mean, utilities are becoming much more enlightened around the customer experience and impact, rather than just the economic aspect of these things, because they're not for-profit organizations, for the most part. On the industrial side, you know, it really, it comes down to the pure economics of them seeing lost revenue and lost profits from stoppage, and they'll write that check tomorrow. And that's why the Evoqua business that we just acquired is doing so well, is because for those business users, the value of water is not the price per liter or gallon, it's when they don't have it. But unfortunately, it takes them to have to have a bad experience, typically kind of turn the lights on for them.
Matt, we've spent a lot of time talking about supply and affordable supply of water. You made a reference earlier that I think is important because demand, often, whether it's for climate and or, you know, emissions or here, and water doesn't often get talked enough about. Can you talk a little bit about innovations that you see out there, and particularly on efficiency? Do you see how interesting are more of the demand-side investment opportunities for us?
I'm going to answer that, and probably in a way that you weren't expecting, a little bit, because the innovation that I'm going to refer to is actually, while technology is important and there's a lot of really interesting technology, really one of the key elements of success in water revolves around regulation. So where you have, you know, improving and a solid regulatory framework, that's what ultimately drives innovation. And the key to that regulatory framework is transparency and the proper incentives. And let me be specific. In the Western United States, and by the way, as it relates to demand and what is referred to as demand management, the federal government has set up a number of demand management--incentivized demand management programs.
Some of the capital has come from the Inflation Reduction Act, and what they're doing is offering money, compensation to farmers that are willing to take a very close look at their cropping patterns, and ultimately creating conservation, short-term conservation, which is able to save water and benefits the system and get compensated for it. So that's like a regulatory innovation that has, you know, started a few years ago, and it's growing and it's working. It's something we think is going to continue, and ultimately, it's going to be a big part of the solution, we believe, to water supply reliability in the southwestern United States. And, you know, there are, as I mentioned earlier, there are colossal water-related problems all over the world.
Southwestern United States is one of the most important because, it's one of the largest economies in the world, facing a very severe water supply problem. And, you know, as mentioned earlier, I think it's, the West is not running out of water. It's running out of water from some of its legacy supplies, and, there are solutions to that. And, by, you know, kind of creating these types of incentives and maybe reallocating a little bit, we're able to provide, you know, sustainable, reliable solutions for the long term, for communities, for the environment, for industry. And, so again, solvable.
Great. We're into overtime. Patrick, I'm going to give you the last word. You recently announced your retirement, and perhaps you could very quickly give us some words of wisdom to send us off that you'd want to share on the sector or for future leaders of Xylem and industry.
Oh, well, that's very... Thank you. Very generous. Yeah, it's, it's been a decade. It's been a real privilege, and we were talking earlier about, you know, opportunities to stay involved in leadership in the water space. I just—I would leave to you all that, you know, I used to always say that the only finite resource on the planet was water. You know, all water that's been here is here in some shape or form, but there's only so much of it. But then as I got older, I realized time was also the other finite resource. The thing about time is you don't know how much you have or those around you.
The reason I bring it up now is I always say, you combine time and you live your life with purpose, time plus purpose equals impact. I would just encourage all of you, you wouldn't be here if you didn't have a real interest in what's happening to this planet and future generations. Use your time wisely, keep it with purpose. The solutions exist to these challenges, but it takes leadership and resolve to make it happen. I'm an optimist. My father always said, "Every generation thinks theirs is the last." We're smart as human beings. We'll figure it out, but only if there's leadership, and leadership that works together. Water is not a sector. It runs through society and economy.
Great. I think with that, please join me in thanking each of our panelists.