The global water crisis puts billions of people at risk. These are the numbers.
Climate change is in the headlines, but water-related risks are serious and growing. Investors and the general public need to be careful, say groups tracking the issue.
According to a new analysis, the water crisis is draining billions of dollars from financial institutions. And the pool of banks, investors and insurers investing in the most water-exposed companies is increasingly concentrated, according to a report from CDP and Planet Tracker.
As a result, the nonprofits say, “the threat to financial stability may be significant.” If institutions underestimate the danger, they could allocate too much capital to projects that could end up being written off as the water supply is depleted or polluted.
But it’s not just financial companies that need to pay attention: water-related problems are a threat to people, businesses and economies around the world, whether due to too much, too little or a contamination. Investors should assess the risk to their portfolios from thirsty industries such as metals and mining, food and beverages, and semiconductors.
Patricia Calderon, associate director of water safety at CDP, a nonprofit that helps companies track their environmental impact, said the report was the first of its kind. It quantifies the financial implications for companies with so-called “stranded” assets – projects or other holdings that have suffered from unexpected or premature write-offs, downward revaluations or have been converted into liabilities – and takes a closer look at the implications for financial institutions. linked to giant corporations working in sectors such as energy, metals and mining.
“Our analysis revealed that the greatest concentration of risk is within global asset managers and governments through their holdings, while exposure to lending activities is spread across major global banks,” he said. she declared. “Over the next five years, many financing deals will be discussed across major resource sectors, therefore, financial institutions should factor water risk due diligence into their assessments.”
Cate Lamb, global director of water security at CDP, said companies are already losing billions in revenue by not factoring water security into strategic decision-making in the short, medium and long term. term. “The global water crisis is happening here and now,” she said.
Indeed, the United Nations has predicted a 40% deficit in freshwater resources by 2030. This, coupled with a booming world population, “is the world heading for a global water crisis“, said the organization.
The CDP report analyzed four sectors – oil and gas, electric utilities, coal, metals and mining – and found that $13.5 billion in assets are already locked up and more than $2 billion are at risk on major infrastructure projects.
Frozen assets include the Keystone XL Pipeline project in Canada, which has already written off $6 billion, and the Pascua-Lama gold mine, a project straddling the border of Chile and Argentina, which has lost $7 .5 billion dollars. Last year, President Joe Biden blocked the Keystone pipeline following opposition from environmental activists.
The report’s authors note that changes in water regulations, high levels of pollution and community opposition are among the water-related risk factors for stranded assets.
Kirsten James, senior program manager for water at Ceres, an environment-focused shareholder advocacy organization, said every business and industry in the world depends, to some degree, on a supply of fresh water. clean and that the situation is becoming more and more urgent. “The CDP report really highlights what can happen if we don’t tackle this water crisis head-on with various stranded assets,” she said.
The report analyzed responses from 1,112 publicly traded companies to CDP’s 2021 Water Security Questionnaire and found that 69% are exposed to water-related risks that could materially impact their business. . Losses could reach $225 billion.
In a separate analysis of financial sector data from 2020 and 2021, a third of companies (out of 377) are still unaware of the problem and said they do not assess the implications of water insecurity when making business decisions. investment or loan.
Calderon said water risk will worsen due to climate change and companies need to act now to assess the risk. “It’s the tip of the iceberg,” she said.
Water and climate change are closely linked, with climate change acting as a threat multiplier, according to Ceres.
“This is a systemic financial risk and has been for some time,” James said. “We are working to raise water risk in the same effective way that we have raised climate risk within the wider investment community. We need investors to act on water risk with the same boldness as they act on climate risk.
Write to Lauren Foster at [email protected]