The water crisis is here and now. So why haven’t more investors stepped up?

With the climate crisis playing out in real time in California, there’s another crisis looming that must be a focus of investors, says Ceres’ Kirsten James.

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The devastating wildfires in my home state of California are a wakeup call for many about the realities of the climate crisis. But there is another crisis that is playing out in parallel in communities across the state and in many other parts of the world: the water crisis.

The thousands of tons of ash left behind from the wildfires pose a major and growing threat to the quality of the state’s water supplies – one that could potentially leave even more Californians without access to safe, clean drinking water. Some forest trees have been so badly scorched that they resist reforestation, limiting their ability to perform essential functions in the hydrological cycle. The ensuing reduced snowpack, increased water runoff and hydrophobic soil layers can all reduce available freshwater resources. And a recent study posits that, beginning in 2000, California entered one of the worst megadroughts in 1,200 years, which may be further exacerbating the building crisis.

These looming threats, growing by the day, are just a few of the many water-related impacts exacerbated when a deadly and destructive climate disaster hits. The problem is not unique to California. Many communities are grappling with the water impacts of climate change, population growth and agricultural pollution, all of which are compounding water availability and quality issues. As California burns, on the other side of the world, more than 600,000 people have been forced to flee flooding across South Sudan after months of torrential rains pushed the Nile well over its banks.

Food and beverage companies – and their investors – will be among the first to experience a financial hit as water becomes more scarce and agricultural production becomes more volatile

The UN says we are “alarmingly off track” to ensure water availability and sustainable water management at the level necessary to achieve the targets laid out in SDG6 by 2030. What’s more, scientists predict by 2030, global water demand will exceed supply by 56%.

The good news is these threats are known, predictable and, in many cases, preventable. And our largest institutional investors and commercial banks have a role to play in turning around this crisis and driving the necessary corporate actions to mitigate its impacts.

That’s why Ceres, in partnership with the Government of the Netherlands, launched the first ever Valuing Water Finance Task Force. This influential group of global asset owners and financial institutions aims to raise awareness within capital markets of the widespread negative implications of corporate practices on water supplies, as well as the industries linked to the most severe and systemic of these impacts.

Investors are increasingly concerned about the investment portfolio risks of the water crisis – and it is clear why. According to our own research, at least 50% of the stocks listed in each of the four major US stock indices are in industries with medium to high water-related risks – risks created by conditions like those in California. Essentially, roughly half of the industries in our economy face significant water risks.

At the centre of the water crisis is the $5trn global food and agribusiness sector, because it is responsible for using 70% of the world’s freshwater supply. Food and beverage companies – and their investors – will be among the first to experience a financial hit as water becomes more scarce and agricultural production becomes more volatile. Water shortages can cause agricultural supply chains to grind to a halt or send the price of commodities skyrocketing. Competition for more scarce water resources will also pit companies against local communities. In fact, we are already seeing this play out.

So, just as investors engage with the largest energy and transportation companies on climate-related risks, they have to do the same with companies that face increasing risks from water scarcity and pollution. Our Investor Water Hub, a strong coalition of investors, is enabling investors to do just that.

But why aren’t more investors stepping up?

There have been some inroads – pressure from investors has led to several high-profile companies announcing their commitment to water stewardship even in the past weeks – but the water crisis continues to accelerate at a dizzying pace. Ceres interviewed more than 35 investors about water risks, and their responses point to some key roadblocks.

Although a range of scientific and academic research on water risks exists, to date, no organisation has brought this research together in a way that succinctly summarises – for the investor audience – the extent of these impacts, the industries involved, and the specific business practices that are driving the most severe impacts to freshwater resources. One important goal of the Task Force is to develop and release a set of bold expectations that clearly outline how industry must change business practices to truly value water. They will draw from cutting-edge science, materiality research and the best water stewardship practices. This will lay the groundwork as we build a much larger global multi-stakeholder investor and financial institution collaboration.

Preparing for a future marred by both the climate and water crisis may seem daunting, especially in a time like now. But, we hope more investors and financial institutions will step up and join us in valuing and protecting our water resources. Together, we can value water in ways that build long-term resilience in our water systems so we have access to safe, clean drinking water for generations to come.

Kirsten James is the Programme Director of water at US-based sustainability organisation Ceres.