Water is the new carbon for institutional investors and money management firms across the globe, as risks and opportunities arising from water scarcity climb up the risk agenda.
The United Nations estimates almost half the world's population will live in areas of high water stress by 2030, with a 40% shortfall between water supply and demand. Changing demographics, a developing middle and working class, and aging infrastructure are all contributing to water stress, said sources.
“This is a very significant issue for all investors,” said Fiona Reynolds, managing director at the U.N. Principles for Responsible Investment, based in London. “Water is central to pretty much everything that we invest in,” with food, beverage, apparel, retail and agriculture sectors the biggest users. “That is why, now that investors (have) really started to accept climate change as a risk — and that is still relatively new for (many) — we are seeing the increased focus on water. And I cannot see that going away.” Ms. Reynolds added that demographics and waste due to aging infrastructure are also issues.
The PRI partnered with the World Wildlife Fund and PricewaterhouseCoopers Germany to launch an investor-led effort focused on the water risks that companies face in their agricultural supply chains. It will publish its results in October.
Doug Morrow, Toronto-based associate director of thematic research at ratings and analysis provider Sustainalytics BV, said the market as a whole is increasingly aware of water risks and opportunities. “It is becoming clear that water scarcity can impact the productive capacity of companies and thus shareholder returns.”
Sustainability advocate Ceres is seeing increased maturity in the understanding of water risks, with a “real evolution in investor awareness and understanding,” said Monika Freyman, director, investor initiative, water program, in Vancouver. She said the “1.0” was asking questions around volumetric water usage by companies. “The 2.0 was also looking at water risks” around wastewater, and also considered social issues related to water. “In 3.0 we are seeing scenario analysis as being important to understanding water risks,” and focus on sector-specific risks.