Biodiversity | ~ 2 min. read
Weighing up the water crisis
Water may seem ubiquitous but the reality is it is in short supply. As the planet faces an urgent water crisis, how can investors be part of the solution?
The philosopher, astronomer, engineer and mathematician, Thales of Miletus born in 625 BCE, declared water to be the principal element of the universe and ubiquitous in falling from the sky, present in soil and existing within plants. But more than 2,500 years later the world faces a severe water crisis
Identifying water as a finite and undervalued resource is necessary for investors to mitigate the potential risks in portfolios and identify opportunities to help resolve the challenges. The fact that water is in limited supply has major consequences for society and the global economy.
Did you know?
- Most of the water on Earth is unfit for human consumption or locked in glaciers, with only 1% available as freshwater1.
- Global water use is increasing faster than population growth2 – meaning shortages are predicted to become a greater problem over the next few decades.
Today, 2.1 billion people lack access to safe drinking water and more than 3 million die each year from water-related diseases3. There’s a clear lack of access to safe and affordable water that threatens food security, social wellbeing, education and the ability to break away from poverty. Climate-related weather events and natural disasters could further reduce the availability of safe water.
Identify the risks
The effect on business is tangible. Along with direct operational risks, companies face physical, regulatory and reputational pressures. For example, finance firms may have high revenue exposure to industry sectors with elevated exposure to water risks. The energy industry is another example, hydropower – a key source of renewable energy – is reliant on a direct supply of water, while nuclear and thermoelectric plants require significant amounts of water for cooling.
Decreased access and availability of water combined with the possibility of climate change and natural disasters poses such risks for businesses, industries and economic regions around the world. To tackle the potential cost of water scarcity, it’s increasingly important for investors to be aware of these issues.
What are the UN SDGs?
The 17 Sustainable Development Goals were adopted in 2015 by the United Nations as a call to action to prevent poverty, protect the planet and to ensure that all people enjoy prosperity by 2030.
Investing in water solutions
Furthermore, seeking opportunities for investing in solutions and technologies to safeguard water as a resource is becoming increasingly necessary. In 2023, we anticipate a greater focus on the following aspects:
- Water risk materiality: for investors seeking unconstrained investment universes, it will be important to identify material environmental, social and governance (ESG) risks relating to the water impact on companies and sectors including water intensity, physical risks and controversies.
- Regulation screening: this includes EU MiFID II, Principle Adverse Impacts and Do No Significant Harm screenings for sustainable activities introduced in 2022, and future expected requirements for biodiversity loss mitigation.
- Impact-focused investing: identifying companies that are rising to the challenge is critical for long-term growth. Solutions include directing more capital to UN Sustainable Development Goal 6 (SDG 6); “Clean Water and Sanitation” which focuses on minimising water intensity; as well as developing new production processes and products that are less reliant on water, addressing pollution, and creating efficient water infrastructure
1 WWF, 2022, Freshwater
2 United Nations, 2018, Water Scarcity
3 World Health Organization, 2022, Drinking Water
