From black to blue:
Understanding water-stress exposure in an investment portfolio
Responsible investing: Moving the climate focus beyond carbon and on to water.
The impact of water-related risks on communities is potentially catastrophic, given water’s place as a critical input to all facets of life. It is this that makes risks related to water multi-dimensional. Furthermore, not only do we need to know how much water is used (i.e. volume), but we also need to plot that against where the unit of water is used (location).
The reasonableness of producing a portfolio-wide water metric is less clear than in the case of carbon footprint.
Water risks are regional, multi-dimensional and very distinct from carbon. In researching how to incorporate water issues systematically into an investment portfolio we have identified:
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Four key considerations for investors seeking to incorporate water into their portfolio
Water risks are distinct from carbon – introducing physical risks
Unlike carbon risks, water-related risks primarily relate to physical risks associated with climate change. Physical risks can be broken down into direct and indirect. Physical risks include direct damage to assets while indirect risks cover supply chain disruptions and water availability, for example.
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Overall, we have concluded that the current water-related investment tools available are insufficient and inhibit investors from converting insights into meaningful action. So, we have developed a unique decision-tree approach to tackle this problem and better enable investors to make material investment decisions.