Water is essential to civic and business life. As water stress becomes more common, businesses need to consider their water-related investments and whether firms in their portfolio are managing water effectively.
Responsible water management is also covered by the UN’s Sustainable Development Goals, which are a priority for many impact investors. From a financial standpoint, too, the dangers of droughts, poor water infrastructure, and changes in environmental regulations or water tariffs can all pose risks to a company’s continued access to water, which may drastically impact business-critical processes.
Because water risk can affect a wide variety of sectors and asset types, it’s often difficult to accurately assess it through a cursory inspection of investments. Deeper analysis may be required to learn how investments relate to water supplies and how water risk may impact a portfolio. To help investors tackle this challenge, Ceres has published an Investor Water Toolkit.
The Investor Water Toolkit
Ceres is a nonprofit that aims to support sustainability in business. The organization’s toolkit walks investors through the steps of analyzing a portfolio’s water risk, beginning with establishing beliefs and policies. From there, investors can create a heat map highlighting areas where water risks may be material. Investors can incorporate factors that may influence their ability to mitigate risks, such as ownership percentage. The heat map gives an idea of the overall water risk in a portfolio and may help identify specific investments that warrant in-depth analysis.
Next, investors can research individual securities that were flagged in the previous step to determine their dependence on water and water-related risks. Conducting stress tests, scenario analyses, and buy/sell analyses may help investors identify and respond to risks.
Each chapter of the toolkit includes additional resources, including links to data and examples of Ceres’s own analyses. There’s also material on using shareholder engagement to drive change, with samples of shareholder resolutions.
How Investors Apply Insights from Water Analysis
As part of the toolkit, Ceres makes available several case studies detailing how organizations have analyzed their water risk. One features ACTIAM, a fund manager in the Netherlands that committed to reaching water neutrality by 2030. ACTIAM analyzed the water consumption levels of companies in its portfolio that are located in regions experiencing water stress. After correcting for data gaps, it compiled an aggregate water footprint for its portfolio. ACTIAM uses this analysis to monitor its progress toward a portfolio that does not deplete or pollute the earth’s water supplies.
Another case study focuses on the Park Foundation, which charted investments by potential impact and relevance to its values, analyzing subsectors to determine whether they were compatible with its goals. The foundation then explored new opportunities and directions, identifying new impact investments and clarifying some of its values to make them more actionable.
Thanks to Ceres, analysis of water-related investments may now be easier than ever for investors. As more investors become concerned about the potential effects of environmental change on their portfolios, tools like this may become more central to some investors’ strategic planning.