Institutional investors concerned about water risks across their portfolios now have a way to measure it, through a risk rating launched by ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc.
ISS ESG experts warn of a looming water crisis in investment portfolios, as freshwater resources come under increasing pressure because of population growth, climate change, and unsustainable production and consumption patterns.
The ISS ESG Water Risk Rating was designed to help investors identify freshwater-related risks and assess a company's exposure to and management of that risk.
The risk rating will initially cover 7,400 companies globally. A March analysis by ISS ESG found that one-quarter of those companies are in a high-risk exposure category when the industry, supply chains and geographic activities are combined.
Along with the humanitarian and environmental impacts, there is "an economic risk with implications for the business community and its investors," according to an ISS ESG post on its website.
Economic risk falls broadly into two categories: physical risks related to where businesses or their suppliers operate; and corporate risks if a business' operations could harm the environment and impact communities' access to water, said ISS ESG, which launched the rating March 22.
Potential financial risks include reduced company revenue, increased operating costs or impaired long-term business viability. There is also reputational risk if water-related impacts are not managed.
"Understanding and identifying companies based on these risks can therefore be a powerful resource for portfolio allocation," ISS ESG said in the post.
