Regulation

Weighing up the water crisis

Weighing up the water crisis

The philosopher, astronomer, engineer and mathematician, Thales of Miletus born in 625 BCE, declared water to be the principle 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 to uncover future opportunities. Despite its life preserving qualities, an understanding of what it means to society and to the global economy to incorrectly treat water as an infinite resource is limited.

Did you know?

  • Most of the water on Earth is unfit for human consumption or locked in glaciers, with only 1% available as freshwater.
  • Global water use is increasing faster than population growth – 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 diseases. There’s a clear lack of access to safe and affordable water that threatens food security, social well-being, education and the ability to break away from poverty. Climate-related weather events and natural disasters are likely to 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 too. An atypical example is finance: firms may have high revenue exposure to sectors with high exposure to water risks.

Water solutions benefit industry, society and the planetary fabric that sustains life. The water crisis poses financial risks across industry sectors and economic regions around the world, and it’s increasingly important for investors to be aware of the issues – and opportunities.

In 2023 we anticipate a greater focus on the following, further enabling investors to access the water theme:

  1. 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, physical risks and controversies.
  2. 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.
  3. Impact-focused investing: identifying companies that are rising to the challenge is critical for long-term growth. Solutions include directing more capital to SDG 6 Clean Water and Sanitation; 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.
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