Futurecasting a World With Water Aware Financial Institutions: Four Takeaways

Understanding the real enormity and complexity of the water crisis that companies face requires a concerted effort at combining scientific and financial insights, according to speakers convened by Ceres at World Water Week 2020.

Speaking as part of Ceres webinar Futurecasting a World with Water Aware Financial Institutions, Kirsten James, Director of Water at Ceres, shared a vision for a future that harnesses the power of investors and banks to “engage systemically important water users and polluters across the economy to adopt and implement corporate expectations for valuing water.”

Ceres was joined by stakeholders in the public and private sector, including pension fund AustralianSuper, Sweden’s Skandinaviska Enskilda Banken, and the Government of the Netherlands, to envision and strategize for a water-secure future, as well as troubleshoot the roadblocks to progress. 

The webinar also introduced the launch of the Valuing Water Investor and Stakeholder Working Groups, where representatives from any organization concerned about the future of water  can provide feedback on shaping a water-secure future as part of the Valuing Water Finance Task Force, an Ceres initiative that brings together some of the largest and most influential pension funds and banks to drive corporate action on water-related financial risks. 

Here are four key takeaways from the session:

1. The water crisis is already happening.

Despite the many other crises competing for our attention this year - including a pandemic that forced this yearly convening to meet online rather than in person - the water crisis is as urgent as ever and the targets for action have not changed. Some $4.2 trillion USD is currently at stake in major world cities alone due to water-related risks, such as drought, flooding and poor water quality.

2. The water crisis is a systemic issue that requires system-wide solutions.

According to James, one of the challenges to addressing the water crisis at scale is the limited lens companies typically use when they are considering the water risk. Water risk can encompass a number of different risks or even a combination of risks.

“There is a narrow focus on individual efforts, and no real sense of the gross water risk,” she said. “Focusing just on local, individual issues exposes a lack of clear, meaningful expectations.”

For instance, an assessment that pension fund AustraliaSuper conducted found that its $122 billion portfolio in assets under management  was exposed not just to drought risk, but to flooding from typhoons in the Southeast Asian supply chains as well. Meanwhile, SEB, a bank and investment manager in Sweden that has $120 billion in assets under management, experiences water risk as a water quality issue rather than a quantity issue. All these disparate impacts have the potential to negatively impact the value of both firms’ investments.

3. The water crisis needs to be broken down into actionable steps in order to be addressed.

While studying and understanding these risks is part of the problem, another hurdle is making the business case for assessing water risk in ways that spell out the financial risks. The Valuing Water Principles, released by the Government of the Netherlands as part of the Valuing Water Initiative in 2018, represent an attempt to define common goals and language around water risk. But according to Maarten Gischler, Senior Water Adviser for the Government of the Netherlands, they aren’t specific enough to drive action. 

“The Valuing Water Principles are the foundations for action - they are both hard to disagree with but hard to operationalize,” he said “As long as the price of water is below the true cost, business cases for valuing water are hard to make.”  

Gischler estimates that the true cost of water is four to eight times higher than what companies currently pay for it. Making sense of that gap - and how to close it - is a crucial step to engaging companies about their water use. 

4. The water crisis can be addressed by all stakeholders, both financial and non-financial, in creating a water-secure future.

Ceres, in collaboration with the Government of the Netherlands and University of Saskatchewan’s Global Institute for Water Security, is inviting everyone to the table to model a water-secure future via a first-of-its-kind project - the Valuing Water Finance Initiative.

Launched in March 2020, the Valuing Water Finance Task Force aims to raise awareness within the capital markets of the widespread negative impacts of corporate practices on water supplies, and the industries and practices linked to the most severe and systemic of these impacts.  

And according to Gischer, it’s not a moment too soon.

“Now is the time to push all the levers for action,” he said.

Watch the full webinar here.

For financial institutions wanting to learn about the new Valuing Water Investor Working Group, fill out this form.

For non-financial institutions wanting to learn about the new Valuing Water Stakeholder Working Group, fill out this form.