Investing In Water Intensive Users

Thermal power cooling is estimated to be by far the single largest source of industrial water demand in China.

Water-related [intlink id="96" type="page"]risks[/intlink] have received increasing interest from the investment community, as evidenced by a growing volume of investment research. In 2006, in its Thirsty China report, CLSA highlighted water as the biggest resource constraint to China’s growth and advised investors to question the management of companies in water-exposed industries about their compliance with water pollution regulations. In 2008, JP Morgan released its report, Watching Water, which offered a framework for evaluating water scarcity and water pollution, and predicts that companies will come under increasing pressure to disclose water-related risks to investors. And last year, investor-focused CERES, in its Water Scarcity and Climate Change: Growing risks for business and investors, states that investors have a significant interest and role in catalysing companies to screen for potential risk exposure to water-related challenges. The report also maps the water use and discharges of [intlink id="94" type="page" anchor="Water_Footprint_Intensity_of_Select_Sectors"]water exposed industries[/intlink].

Leading global financial institutions, particularly those with a Socially Responsible remit, have also begun screening for water-related risks. In December 2008, an alliance of investors with a combined portfolio worth US $1.5 trillion and signatories to the UN-backed Principles for Responsible Investment, urged 100 of the world’s biggest companies to join the CEO Water Mandate, a Global Compact initiative designed to assist companies in the development, implementation and disclosure of water management policies and practices. That same year, following the launch of its Global Water Fund, SRI giant Calvert emphasized specific water issues in the Fund’s advocacy agenda to include equitable and affordable access to water and sanitation as well as the relationship between climate and water risk. The firm reports that it is successfully influencing some companies to produce sustainability reports.

In 2009, Norges Bank Investment Management, which manages the Norwegian Government Pension Fund, one the world’s biggest funds with a US $407 billion portfolio, added water management to its corporate governance investment criteria. APG, the Dutch pension fund, also amongst the world’s largest, now considers water risks in its investment analysis. Experts have predicted that this will only strengthen the trend in recognising water-related investment risks as a cost issue rather than just an environmental factor¹.

Also in 2009, the Carbon Disclosure Project (CDP), known for its investor-driven carbon reporting initiative, launched its Water Disclosure Project (WDP), a new programme designed to help institutional investors to understand the financial risks that water-related issues pose to their investment portfolio. Similar to the Carbon Disclosure Project, WDP, will provide a framework for companies to report their use of water and their exposure to changing patterns of water availability. Measurement and reporting of water availability and usage itself can be even [intlink id="97" type="page"]more complex than for carbon[/intlink].

Following the trends observed in the CDP, predictably much of the information, in the short-term, will most likely come from foreign-owned multinational companies, with scant disclosure from Chinese-owned companies.