A group of investors led by US-based advocacy group Ceres are looking at considering the impact of water risk on responsible investment and are collaborating on a “water toolkit” to help institutions integrate water analysis into their regular, mainstream financial analysis.
Ceres’ Monika Freyman, Director of Investor Water Initiatives, says drought causes food and energy costs to rise dramatically in many regions and means companies can experience deep financial and societal impacts deep into their supply chains.
The initiative aims to “leverage the power of institutional investors”, she continues, to play a decisive role in protecting the globe’s freshwater resources.
Unlike unacknowledged carbon risks, which can have a detrimental effect on a portfolio, material water impacts “can wipe out entire investments or balance sheets in the blink of an eye”, Freyman continues. She points to recent incidents at gold miner Newmont and drinks giant Coca-Cola, where both companies had to abandon projects due to community pressure over negative water impacts.
The group, which includes advisors from Dutch pension fund manager PGGM and Norwegian giant Norges Bank Investment Management, is supported by the Rockefeller Foundation.
Other institutions who make up the working group, which meets on a monthly basis to share best practices and other innovations, include Impax Asset Management, former Deutsche Asset Management chief Kevin Parker’s Sustainable Insight Capital Management, Breckinridge Capital and the University of California Regents.To start, the group has been tasked with creating an investor water toolkit, described as a “one stop shop” set of resources, best practices and ideas to help investors make water analysis part of their regular mainstream analysis, in time for early 2017.
Then its members plan on encouraging other market players to consider water issues, with plans already in place to alert bodies like the Sustainability Accounting Standards Board (SASB) about the need for investor water research. Other targets include credit rating agencies, industry association and data providers themselves.
“Once water analysis becomes more systematically embedded into the financial markets, investors will play a stronger role to preserve not only their own capital, but threatened freshwater capital, too,” Freyman added.
Ceres recent surveyed 35 pension funds and fund managers about their strategies for integrating water data into their decision making, and found that their current practices were largely insufficient in a number of areas: many did not institutionalize water risk analysis or understand their exposure to such risks, with a widespread lack of water foot-printing or integration of water risks in investors’ portfolios.
Water impact is an area of risk that has come under increased scrutiny from responsible investors in recent months. In May, the Natural Capital Declaration led an effort to develop a model that quantified the risk of extreme drought to financial institutions and supply chains, with the aid of the German Government and investors including UBS and Citigroup.
In July Water.org, the US non-profit developmental aid co-founded by actor Matt Damon, announced that it was preparing to raise a $50m impact investment fund targeting water sanitisation and supply projects in Asia.