Scarcity or abundance? The risks with climate change you could be missing
Wealthy and developed nations are also feeling the impact of water shortages. So far in 2020, states like NSW in Australia are experiencing tough water restrictions – including in metropolitan areas – as the country faces one of its worst droughts and a bushfire crisis.
The effects of climate change on water storages will be further compounded by the addition of another two billion people to the planet by 2050, predominantly in parts of the world which are already short of water7.
What can we do?
Investors may seek full transparency about water risks in a company’s operations but also across its supply chain, which often represents the largest proportion of water use8. This information may be voluntarily disclosed by the company as part of its sustainability reporting regime; alternatively, organisations such as the CDP compile reports on the exposure of companies to water risk.
A number of indices have also been developed that encompass companies whose business lies to a large extent in water. These include broad indices that track a variety of water-related stocks, such as the S&P Global Water Index, as well as those with more focussed sustainability criteria, such as the NASDAQ OMX US Water Index.
Despite the opportunities on offer, recent evidence suggests that investors aren’t yet taking the initiative when it comes to water sustainability9. This is a concern, as while the effects of climate change on sea level rise might not be realised for decades or even centuries, the deadly consequences of a world with dwindling resources of clean, fresh water are being felt now.
Markets, after all, are chiefly concerned with the allocation of scarce resources, and for many of us water scarcity is about to become a fact of life. Our investment decisions have the potential to reflect that.
3 Water and climate change adaptation, OECD (2013)
5 Temple J. (2019), India’s water crisis is already here. Climate change will compound it, MIT Technology Review, April 2019
6 Wester P., Mishra A., Mukherji A. & Shrestha A.B. (Eds) (2019), The Hindu Kush Himalaya Assessment: Mountains, Climate Change, Sustainability and People, Springer Nature Switzerland
7 Long S. (2019), Climate change and population growth are making the world’s water woes more urgent, The Economist, February 2018
8 Climate change, water and food security, Food and Agriculture Organization of the UN
9 World Health Organization, 10 facts on climate change and health
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