Financial institutions deeply exposed to stranded assets caused by global water crisis, says report

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A new report released by non-profits CDP and Planet Tracker reveals how financial institutions are exposed to significant risks posed by depleted and contaminated water supplies.

The analysis, described as the first-of-its-kind, shows how global companies in key industries are already losing billions as a result of the global water crisis.

By focusing on four sectors, oil & gas, electric utilities, coal, and metals & mining, the report found that US$13.5 billion in assets are already stranded and US$2 billion at risk due to water issues.

Changes in water-related regulations, high levels of pollution, and community opposition were all cited as drivers for these stranded assets.

Cate Lamb, CDP’s global director of water security, commented on the findings: “The global water crisis is happening right here and right now.

“Companies are already losing billions in revenue due to failing to factor water security into short, medium and long-term strategic decision making.

“Our new research shows that the situation is resulting in significant financial impacts not only for the companies, but for those financing them.

“Financial institutions need to understand how exposed they are to these risks and take immediate steps before it’s too late.

“This is a crisis which is playing out in real time and with real life consequences. For too long it’s been assumed that water supplies will always be there in abundance. This mindset has led many of the world’s freshwater aquifers to breaking point. We need to stop financial flows to risky infrastructure projects which are already haemorrhaging cash.”

The report provides three key actions for financial institutions to take:

  • Assess risks and impacts – firms should take advantage of new tools to identify risks at different levels: industrial, company, stock, and geographical factors all play a role.
  • Disclose data – increasing the level of transparency is critical to understanding water risks. Many regulators are already creating mandatory disclosure requirements to address environmental crises. Financial firms should get ahead of these rulings and disclose their own portfolio water risks and impacts.
  • Manage risks and impacts – firms need to create an engagement strategy which communicates the need for companies to address the water crisis. Financial institutions should put pressure on their portfolio companies to support enhanced water disclosures and measure the impact of this engagement.

Governments in the EU, India and Canada are currently considering mandating some form of water disclosure for financial institutions.

To pave the way, CDP is making the first ever water-related information request available to 1,200 publicly listed financial institutions. This request is designed to highlight the problem and shift investments away from those which negatively impact water resources.

The ‘High and Dry: How Water Issues Are Stranding Assets’-report is available on the CDP website.