Environmental Social Governance (ESG)

Looming and little-considered climate change impacts

By Emily Woodland
CFA, BA(Hon), M(SocSc) Head of Sustainable Investment Hong Kong, China

Some impending, but often little-considered, impacts of climate change on water supply should be on everyone’s radar – and investors can make a difference.

Australia is in the throes of one of the worst droughts in living memory. In recent weeks, the NSW Government on the country’s east coast flagged a major expansion of water recycling initiatives1  in Sydney, as the city’s storages fell below 46%. Across the state a number of smaller towns and cities are on the brink of running out of water2 as we move into what is shaping up to be a long dry summer.

It’s a taste of things to come as the effects of climate change start to bite, and a trend that will increasingly affect populations around the globe. According to the World Resources Institute, seventeen countries – home to a quarter of the world’s population, will face extremely high water stress within the next twenty years3.

Day Zero

A term that we’ll all soon become familiar with is Day Zero – the point at which a city completely depletes its water supply. In 2018 Cape Town came within a couple of months of becoming the first major city to reach Day Zero, only staving off the worst-case scenario with the help of timely winter rains and some extreme water saving initiatives4 on the part of its residents.

India will be amongst the countries worst-affected, with some estimating that more than forty percent of the population – more than 500 million people – will have no access to drinking water by 20305. As climate change increases the incidence of extreme weather, rains across the country will become increasingly monsoonal and harder to capture. The nation’s other major source of water – the immense Himalayan glaciers, the planet’s “third pole” – are in serious decline, and by 2060 the rivers they feed will carry less water as a result6.

India’s plight underscores the fact that 785 million people worldwide already lack basic access to drinking water7, and any exacerbation of current crises could be catastrophic for the populations involved. Unfortunately, it is generally the poorest people in the poorest countries who currently have least access to safe drinking water. These same people are also least equipped to deal with the effects of a changing climate.

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 water8.

Water scarcity is food scarcity

Climate change will have a spectrum of effects on food production. On one hand, many agricultural regions will benefit from warmer growing seasons and increased levels of atmospheric carbon. On the other, water scarcity will lead to massive loss of farmland in areas already susceptible to drought and hot summers. The regional patterns, once again, are such that those who can least afford it will be most affected. Agricultural output in North America and Western Europe is actually predicted to increase in the short-to-medium term, thanks to climate change, whilst pronounced declines are expected in large parts of Africa, the Middle East and South and Southeast Asia - and especially in India and West Africa9.

Unexpected complications

Many of us pay precious little attention to the role that water plays in our lives beyond our direct line of sight, however a changing climate offers a number of surprising and concerning complications related to lower rainfall. Just last year, low water levels in the Rhine played havoc10 with industries that rely on the waterway to transport fuel and manufacturing inputs. Rivers are also an important source of electricity for many countries; lower flows mean less output11 and increased reliance on less climate-friendly sources of generation. There are even predictions that in the future, wars will be fought over water12.

Back in Australia, residents along the east coast are enduring an early and tragic start to the bushfire season. Dry winters have previously been identified as a major contributor to the conditions that lead to bushfires13, and their spread this year into rainforests previously believed to at low risk of burning has been blamed on abnormally low levels of moisture in the soil and vegetation14.

Conclusion

One of the great worries around climate change is its potential to upset the fine balances that keep our planet functioning, and there are few finer balances than our water resources. Only 0.3% of the world’s water is fresh, surface water, and because it is distributed so unevenly across the globe, it is highly susceptible to climate disruption. Action from government and consumers will be important if we are to protect these resources, but, as I explained in recent months, investors have an important part to play as well.

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Emily Woodland, Co-Head of Sustainable Investment

1 Financial Times, Rhine drought leaves Europe’s industry high and dry 
2 The Sydney Morning Herald,Scrapping over puddles: the desperate battle for water in NSW's towns, 2019
3 Aqueduct, World Resources Institute, August 2019
4 CITYLAB,  Cape Town’s ‘Day Zero’ Water Crisis, One Year Later, 2019 
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 WorldRiskReport 2019 Focus: Water Supply, Bündnis Entwicklung Hilft/ Ruhr University Bochum (2019)
8 Long S. (2019), Climate change and population growth are making the world’s water woes more urgent, The Economist, February 2018
9 Food and Agriculture Organization (2018), The state of agricultural commodity markets: agricultural trade, climate change and food security
10 Financial Times, Rhine drought leaves Europe’s industry high and dry 
11 DW, Hydropower supply dries up with climate change 
12 WorldRiskReport 2019
13 Boer M., Nolan R.H & Bradstock R. (2017), Dry winter primes Sydney Basin for early start of bushfire season, The Conversation, August 2017
14 Penman T. (2019), Why are our rainforests burning?, Pursuit, September 2019

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