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Water risk – a growing concern for investors

Water risk – a growing concern for investors

Environmental risks are becoming more and more tangible. In the aftermath of the historic drought that unfolded 2018 in South Africa, Sasja Beslik, Head of Sustainable Finance at Nordea, decided to take a closer look at the causes and consequences of the water crisis an see for himself how the companies that Nordea invest in are tackling the water issues they are facing. As investors, our intention is to influence investors as well as banking communities to demonstrate better visibility of their water-related risks in order to protect our customers’ long-term assets.

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As investors, water risk is something we need to be aware of with big cities such as Cape Town, São Paulo, Mexico City, Bangalore, Beijing and several others facing a severe risk of water shortage, something which directly affects the companies we invest in. On April 12 last year, Cape Town experienced an immediate risk of facing the dreaded ‘Day Zero’ – the day when the taps would run almost completely dry in the country’s legislative capital. The situation in South Africa caused a global wake-up call with several major, global cities possibly facing a similar situation.

Nordea’s Head of Sustainable Finance, Sasja Beslik, decided to visit the country and see for himself. — Water risk is one of our focus areas within stewardship and engagement for Nordea. In 2016 the World Economic Forum identified water crises as one of the top five global risks of highest concern over the next 10 years. The water issue is not only a present challenge for countries, but also a risk and opportunity for the entities in which we invest, and ultimately the assets we manage, says Sasja Beslik.

In a vicious cycle, businesses impact the environment, but the environment also affects the ability of businesses to operate. The situation in Cape Town cannot be viewed as a unique onetime incident, but as a scenario that we are quite likely to face in other cities in the future – unless we change our ways.

When extreme weather occurs, climate change and inadequate public water management practices pose threats to industrial, agricultural, and domestic water provision. These pertain to the allocation of water to ensure national water, energy, food, and economic security, not only to keep the ecosystem intact but also to avoid already emerging competitions and conflicts among multiple stakeholders. Water is a fundamental necessity for lives and livelihoods, yet it is known that already a billion people around the world live in water-scarce regions. It is also known that unsustainable consumption habits and lifestyles are spreading, and the world faces a paradox of inequalities with poverty and hunger in the era of immense food waste generated. While the biggest existing water resource management challenges have more to do with economics and politics than physical availability, changes in climate, such as extreme droughts and floods, have the potential to seriously affect water and all systems depending on it. In this context, this report aims to uncover the level of awareness of selected South African companies and assess their exposure to any potential water risks, and the impacts and responses to them. The report also draws conclusions for the future and explore how the risks can be transformed into opportunities. Here, you can read Nordea’s full report on water risk.

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