Water risk materiality
For investors seeking unconstrained universes, it will be important to identify material ESG risks relating to the water impact on companies and sectors, including:
- Water intensity: there is rising scrutiny of water usage and management, especially for regions at high risk of droughts or floods. Water intensity is nuanced given the intensity, availability and reliance factors across a company’s supply chain.
- Physical risks: the proportion of revenues, earnings or assets in locations with severe or very severe risk of droughts or floods.
- Controversies are always an indicator, but these will mostly highlight companies with direct exposure to water issues (through local pollution incidents or overuse) without revealing issues related to water dependency across the extended value chain.