OVERVIEW
ESG THEMATIC INSIGHT
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The tenet that “Water, though renewable, is a finite resource” is being proven time and again the world over. It is a known fact that though water covers more than two-thirds of the Earth’s surface, 97% of that is saltwater, which is found in the world’s oceans and other saline water bodies. Around just 2.5% of available water is freshwater, and two-thirds of that is in the form of ice and snow. Readily accessible freshwater accounts for less than 1% of the world’s water supply. Yet the realisation of this fact is significantly lacking, so much so that it is no understatement to say that the prospect of water shortages has not earned the attention it deserves given that a water scarcity poses one of the world’s biggest environmental risks.
The looming water crisis
For the past five years in a row since 2014 and including 2018, ‘Water Crises’ has maintained its position within the top five global risks in terms of impact.
Water issues lead to 360° risks
Water is critical for human development and well-being, and it impacts all the pillars of sustainable development, namely environment, social and economic development. Often water issues pose common problems that prevent communities, entire societies, governments, businesses and customers from functioning effectively. Scarcity of resources can cause operational setbacks and affect production capacities of companies.
Water at a crossroads: today’s scarcity, tomorrow’s crisis
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
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Leveraging water problems into opportunities
While it is evident that the situation is pretty grim, all is not lost. The water crisis is something that is majorly reversible provided the right interventions and steps are taken by corporates, governments, the agricultural community and other stakeholders as well. The time is opportune for innovation and technology in the water space. Upping the development of innovative solutions to solve water challenges, supporting their implementation
and market accessibility brings significant economic opportunities.
Water availability and scarcity issues are highly localised and regional by nature. This, coupled with the fact that readily accessible freshwater accounts for less than 1% of the world’s water supply, intensifies the competition for this resource.
An unfavourable combination of population growth, poor water governance, excess water withdrawals and inadequate infrastructure, among others, has put extreme pressure on our water resources and continues to do so.
For businesses, water is crucial for ensuring effective end-to-end industrial operations and is an input in multiple processes across sectors. Companies depend on water either for their direct operations or through their supply chains.
According to CDP’s 2017 annual report, companies have committed $23.4 billion across more than 1,000 projects to tackle water risks in 91 countries around the world. This is a good example of capital mobilised for water. However, much more action is needed in this regard.
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Depending on the degree of water stress, business can suffer negative impacts such as reduced business profitability through operational disruptions, reduced product life, loss of market access or capital expenditure risks.
HIGHTLIGHTS: AIR POLLUTANT EMISSIONS MANAGEMENT
Key takeaways: leaders, laggards & good-average performers
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This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2021
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Businesses have a crucial role to contribute positively towards the implementation of Water for Sustainable Development’ 2018-2028 goals and targets. Especially when it comes to driving innovation, leading technological advancements, setting examples by establishing appropriate policies and participation in decision-making.
Water stress is defined as the proportion of water withdrawal by all sectors in relation to the available water resources. 33 countries will be subject to extremely high water stress, while many others could face a significant increase in water stress, and the world’s largest economies – the US, India and China – also stand to be heavily exposed to this issue.
corporate water reporting & trends
With regard to water governance, most companies are on the right track having established board or senior management accountability for the same. They are also on the right track when it comes to advocating group-wide water policies, cascading the same to suppliers and also recognising human rights to clean water and sanitation.
Four sectors are found to be leaders with the maximum number of initiatives in the ‘considerable progress’ stage or having reached ‘best practice’ level. These are Food, Beverage & Tobacco, Household Products, Pharmaceuticals & Biotech and Utilities.
Three sectors are found to be laggards with a considerable number of indicators falling into the ‘nascent stage and no initiatives’ categories. These are Aerospace & Defence, Automobiles & Components and Energy.
Key takeaways: leaders, laggards & good-average performers
Risks emanating from water issues have cascading effects that affect everyone, albeit to varying degrees. A WHO study in 2012 calculated that every $1.00 invested in sanitation generated a return of $5.50 in lower health
costs, higher productivity and lower premature deaths. Tackling water-related risks will likely benefit one and all.
The remaining five sectors are found to be good-to-average performers with a mix of indicators in both the ‘nascent stage’ and ‘considerable progress’ categories and demonstrating fewer best practices than the leaders. These are Building & Construction, Chemicals, Hotels, Restaurants & Leisure, Metals & Mining and Packaging, Paper and Forest Products.
The World Resources Institute (WRI) used a combination of climate models and socioeconomic scenarios to rank future water stress, a measure of competition and depletion of water in 167 countries. Subsequent water stress projections predict that by 2040, 33 countries will be subject to extremely high water stress, while many others could face a significant increase in water stress.
Source: World Resources Institute, http://www.wri.org/our-work/topics/water
Water stress projections 2040
