Valuing Water Finance Initiative: A Watershed Moment

Kirsten James, Ceres Senior Program Director, Water

From the recent destructive flooding in Kentucky and Mississippi to the dwindling Colorado River supply, no one is spared from the global water crisis that is accelerating before our eyes.

Water is the world’s most precious natural resource. It is essential to industries, communities, and ecosystems. Yet, it is chronically mismanaged in much of the world. Based on current trends, the world’s population will only have 44% of the water it needs in 2030.

Businesses are already seeing the impacts of this water risk play out globally, from auto makers halting production in China last month because of drought-sapped hydropower to farmers in California leaving millions of acres of land unplanted during the past few years because of the double whammy of drought and dwindling groundwater. Last year, companies faced $300 billion in financial risks from water scarcity alone.

So, what can investors — who share these risks along with the companies they are in invested in — do to move water to the forefront of corporate risk management?

In August, Ceres launched the Valuing Water Finance Initiative, a new investor-led effort to engage 72 companies with large water footprints to recognize fresh water as the world’s most precious natural resource and take more strategic action on water stewardship. Launched with 64 signatories and representing $9.8 trillion assets under management, the initiative continues my organization’s decades of leadership and success in building investor and corporate climate leadership through powerful networks and engagement initiatives.

I recently had the pleasure of moderating a dynamic conversation with Betty Yee, the California State Controller, John Anzani, a member of the executive committee of the Local Authority Pension Fund Forum (LAPFF), and Rev. Kirsten Snow Spalding, senior program director of Ceres’ Investor Network, who outlined the compelling business case for water, including its materiality to investors.

Controller Yee has seen the water shortage emergency play out firsthand. In California, about a million people lack access to safe drinking water. “Whether someone is an investor or a business leader, their business and the resources upon which they depend will be affected by water risk,” said Yee.

Underscoring the need for the decision-useful information that the U.S. Securities and Exchange Commission’s climate disclosure draft rulemaking aims to deliver, Yee explained it is critical for companies to fully understand and then disclose data on any assets exposed to high water risk, allowing for greater transparency around the percent of total water usage in high-risk areas.

Anzani agrees investors should push for companies to assess their own water risk and that these risks should be addressed via holistic approaches. “For a long time, we’ve been able to fool ourselves into thinking that water is expendable, but also always present,” Anzani said. “For too long, water has been regarded as an externality – and we cannot afford this.”

While investors have made a great deal of progress in understanding the physical and financial transitional risks in their portfolios related to climate risk and acting to mitigate the risk, they have been slower to grasp that water is also a systemic, global risk. According to Spalding, water is often seen as a local and government issue, when it needs to be valued and properly managed by all water users, including the private sector.

Companies haven’t had to calculate the true cost of water because they have historically been able to take for granted that water will be abundant and available when they need it. But if we’re misvaluing water, we are bound to mismanage it. With these factors in mind, it’s no surprise that investors have been unable to develop a clear understanding of how industry water impacts pose long-term financial risks. 

Yee, Anzani, and Spaulding agree on the importance of holding corporate water users and polluters accountable in the face of the ever-emerging water crisis. With input from the Valuing Water Finance Task Force, Ceres developed a set of six corporate expectations for investors to deploy in their engagement on valuing water with the companies they are invested in. These collective steps include:

• Water Quantity. Companies do not negatively impact water availability in water-scarce areas across their value chain.
• Water Quality. Companies do not negatively impact water quality across their value chain.
• Ecosystem Protection. Companies do not contribute to the conversion of natural ecosystems critical to freshwater supplies and aquatic biodiversity and actively work to restore degraded habitats that their businesses depend upon.
• Access to Water and Sanitation. Companies contribute to the social, economic and ecological resilience of communities they interact with by contributing to achieving universal and equitable access to WASH across their value chain.
• Board Oversight. Corporate boards and senior management oversee water management efforts.
• Public Policy Engagement. Companies ensure that all public policy engagement and lobbying activities are aligned with sustainable water resource management outcomes.

Climate action has paved the way for water by exposing one abundantly clear realization: It will be impossible to significantly advance climate change--and water security--without stronger private sector leadership. The time for taking water for granted is over.

The financial, environmental, and societal impacts of the water crisis will only accelerate unless we act now, with ambition and urgency. There is no economy, no planet, no humanity without water. The Valuing Water Finance Initiative is a massive step forward in securing the future of water for our communities, our financial system, and our planet.