Access to water: a growing risk

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05 August 2024 Responsible investment, Fixed income

Water-related impacts and dependencies will expand sharply by 2030, leading to growing risk of asset impairment and stranding. This paper sets out why water risks are material and set to increase for corporate bond issuers, how Insight is considering these risks, and sets out a proposal for integrating analysis of water risk into investment research and decision-making.

Corporates depend heavily on access to clean, reliable sources of freshwater. Increasing localised water scarcity will lead to production stoppages, revenue depression and challenges in obtaining new permits for water abstraction and discharge.
Water-related risks affect some industries and sectors more than others. Some industries depend heavily on water, or can have a material impact on water supply – such as the fashion and apparel industry, technology, agribusiness and metals and mining.
Water-related risks are idiosyncratic. Water risks are highly localised in nature, necessitating consideration of wider risks to supply, as well as understanding impacts of increases in the frequency and severity of supply chain disruptions. Many more locations will tip from conditions of relative water abundance into scarcity by 2030 as a result of climatic, economic and demographic changes.
We consider sources of water risk at the sectoral and asset levels to highlight the range of transmission mechanisms of water risk to financial risk.
We plan to use this research as the basis for deep-dive engagements with corporates on water risk, including deciding on target companies for engagement.