Stewardship| ~5 min read
Beneath the surface: engaging on water risks
Water-related risks are increasingly affecting businesses globally. We think engaging with companies through a structured stewardship approach is an important lever for reducing these risks.
Water is one of the world’s most precious resources. Its use and availability can have financially material impacts across industry sectors and at different stages of their value chains. For example, competing demands on water use from populations and industries have heightened the challenges to both water security and human rights globally.1 In some cases water scarcity threatens both industrial use and community water security leading to suspension or stranding of industrial assets.2
Meanwhile, risks are rising from frequent severe weather events causing flood water impacts. Yet, despite these issues, water remains largely under-managed and under-priced, as noted in our earlier blog post.
A deeper dive
Water risk management is a central pillar of our biodiversity engagement programme. Since 2024, through a dedicated water engagement initiative, we have focused on 23 underperforming companies in sectors with the highest financial materiality, as indicated in the table below.
AllianzGI water engagement focus
Where companies have been unresponsive or failed to progress after our engagements with them, we escalated our concerns via annual general meetings, through votes against directors or by co-filing shareholder resolutions.
Case study: McDonalds’ water management3
We have engaged with McDonald’s since 2024 to improve water management through its supply chain. Co-filing a shareholder resolution and collaborative engagement are tools which led us to a constructive and productive engagement with McDonald’s and the withdrawal of our proposal.
Read more in our Sustainable Investing and Stewardship Report
Engagement takeaways
Most of the companies we engaged with had group-wide targets for reducing water use or improving efficiency within their own facilities. However, these targets rarely differentiate for high-risk locations. In addition, water management across broader supply chains is often overlooked.
Based on our work, we have identified three key actions where many companies are lagging behind and which we will prioritise in our ongoing and future engagements:
- Comprehensive water risk assessment: As a crucial first step, we expect companies to conduct thorough water risk assessments of their own facilities and supply chains, since challenges can vary by business activity and region. Some companies may not be aware of current or future water risks, especially within their supply chain. Formal assessments identify possible risks, enabling companies to proactively prepare for potential disruptions.
- Regular monitoring to ensure effectiveness: Even if an assessment shows low risk for now, we encourage regular reassessment since changing weather patterns driven by climate change and biodiversity loss can affect local water availability over time.
- Addressing the data reporting gap: Gathering consistent, useful water data is a challenge, but we guide investee companies towards standardised, comparable reporting. This avoids discrepancy in measurements when consolidating information. We follow market developments in water data reporting, and adjust our engagements and guidance as needed.
It's clear that improved water management can avoid disruptions from physical risks, and lead to cost savings. By prioritising engagement on water-related issues investors can mitigate risks and play a role in preserving this vital resource.
Read more on water:
How investors should tackle the water crisis | Allianz Global Investors
1 WWF, High Cost of Cheap Water, Oct 2023
2 CDP, High and Dry - How water issues are stranding assets, May 2022
3 Securities mentioned in this document are for illustrative purposes only and do not constitute a recommendation or solicitation to buy or sell any particular security.
