‘Water stress’, a problem for the near future
Worldwide, water shortage or (sometimes) flooding are growing concerns. Also, in the financial world, such concerns are ventilated. But apparently, not everybody is already conscious of the big problem that is looming ahead.
“Investors underestimate the risk of water shortage and its impact on the financial portfolios in the years to come.” This is the key sentence of a memo diffused by BlackRock, the biggest hedge fund in the world. “Water stress will affect all regions and all categories of activity, it will become acutely important in the coming years,” the note continues.
The NGO Carbon Disclosure Project (CDP) has calculated that financial assets worth some €360 billion are already affected, according to the financial reports, the big companies all over the world have published.
“In the case of water pollution, certain companies risk a deteriorated image and huge fines. Others have to interrupt production because of water shortage or have to invest heavily in water treatment facilities,” explains Cate Lamb, responsible for the ‘water program’ at CDP.
Water shortage has already caused periods of imposed inactivity. At the end of last year, the mining company Anglo American had to reduce its copper production by 28% in Chili, the country suffering under one of the worst droughts in its history.
Some mining companies already have to use seawater, transported from the coast, to keep production going. According to risk assessing company Trucost (now part of S&P Global), one-fifth of mining exploitations in the world are situated in regions with ‘water stress’. Iron mines are the most exposed.
Water shortage can cost a lot of money. In 2018, the German chemical giant BASF lost €250 million due to the low level of the Rhine. Goods couldn’t be transported anymore; cooling water was insufficient.
Sometimes, there is enough water, but it is too polluted to use directly. 65% of the water tables in China, for example, are polluted, which will add water treatment costs to the production.
“When you add an increasing demand, dwindling reserves, and climate change, the problem becomes urgent,” says Richard Damiana, an economist at the World Bank. Between 70 and 90% of freshwater is consumed by agriculture.
In the Chennai basin (South-India), the water tables are exhausted by intense agriculture, people, and industries have to transport their necessary water in trucks, which makes it more expensive and creates inequality.
The American agricultural giant Cargill promised last month that it would reduce its use of pesticides and restore water tables.
Droughts and floodings
Climate change will multiply cases of drought or flooding. The most recent study of CDP on the matter, published in 2019, indicates that 525 investors are asking the companies they invest in to measure their activity impact on the water resources. Ten years ago, there were only 151.
But there is a difference between being aware of a problem and remedy it. The above-mentioned BlackRock runs an investment fund in the mining sector, one of the industries’ highest consumers of water.
The latest yearly report of the ‘BlackRock World Mining Trust PLC’ counts 150 pages and promises a “maximum return” on investment. In the entire report, there is not one mention of the possible risk due to ‘water stress’.