ESG Feature – Water
California has travelled 1,200 years back in time. The Mayans were the most advanced civilisation in the Americas the last time the availability of fresh drinking water was as low in the state as it is today. California has been drought-stricken for two decades but the levels of water in reservoirs and moisture in the soil means the situation has hit a 12-century low, research led by the University of California Los Angeles (UCLA) says. This problem is not limited to the west coast of the US. Evi- dence of extreme water stress can be found in other parts of the world. Reservoirs in Brazil and South Africa, for example, have reportedly come close to running dry in the past few years. Rising temperatures and lower rainfall have been blamed in all of these instances and are issues largely driven by climate change. Indeed, the burning of fossil fuels is believed to be behind almost half (42%) of the soil moisture deficit in Califor- nia during the past 20 years, the UCLA report says. The situation is only expected to deteriorate. Demand for water is forecast to increase by half in the next 30 years, largely due to population growth and climate change, which is making dry areas of the world even drier. This could leave 3.2 billion people without access to clean water by 2050, the UN says. The irony is that water is all around us covering two-thirds of the Earth’s surface. Yet almost all of it is undrinkable. Indeed, around 97% is not fit for human consumption as the salt in sea water would create other health problems. Of the remainder, only around 1% is accessible as some sources are deep underground, making it difficult to tap into them. What we can consume is reduced further by pollution or wast- age through burst pipes. Then there is demand from industry, especially agriculture, which uses around 70% of known sup- ply to grow food.
The economic impact is not just having enough water for com- panies to operate, but also dealing with the ill health caused by a lack of quality drinking water and sanitation. Pollution does not help and comes in many forms. Rising sea levels, for exam- ple, mean that rivers are overflowing, and you cannot grow rice in salt water. These problems hit productivity and push health- care costs higher. So, a lack of freshwater threatens economic growth. The ques- tion is, are asset owners aware of the issue and using their influence to help companies conserve water? After all, having access to clean water and sanitation is one of the UN’s sustain- able development goals.
Water fight Water stress is not as high up the agenda as greenhouse gas emissions when institutional investors discuss the environ- mental aspects of their portfolios. This is probably due to water being a local problem, whereas carbon emissions and their impacts do not recognise land borders.
32 | portfolio institutional | March 2022 | issue 111
Whiskey is for drinking; water is for fighting over.
Mark Twain
Indeed, the issues reported in the west coast of the US, South Africa and Brazil – based on each citizen having access to less than 1,000 cubic metres of drinking water a year – will not be found in Canada or New Zealand where there is an abundance of the mineral. Yet a shortage of freshwater is a material risk for investors. Food and clothing are particularly high consumers of the min- eral. Indeed, it takes almost 2,500 litres of H20 to grow 1kg of rice, while 22,500 litres of water are needed to produce 1kg of cotton in India.
The economic consequences of water stress may also encom- pass in the political sphere. Thirsty citizens could cause politi- cal crisis, a collapse in social order or wars as countries fight over access to supply.
This has already happened with the Iran-Iraq war in the 1980s being partially fought over water rights, while Israel was pitted against Jordan, Syria and Egypt in the 1960s after there were moves to divert its water supply. There have been border clashes between Kyrgyzstan and Tajik- istan, disputes over access between farmers in Sudan while India and Pakistan clashed over water rights as far back as the 1940s. As the effects of climate change increase and populations explode, expect to see more instances of conflicts caused by H20. As Mark Twain once said: “Whiskey is for drinking; water is for fighting over.” Perhaps a quote pointing out that we might be better off creating a market for water as we have for other com- modities rather than letting politicians control our supply.
Corporate awareness Corporate boardrooms are being made aware of the impor- tance of having an adequate supply. More than 700 of the world’s largest listed businesses reported $40bn (£29.8bn) of
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