First-Ever Investor Tool For Evaluating Water Risks

The Ceres Investor Water Toolkit is the first-ever comprehensive resource to evaluate and act on water risks in investment portfolios. This ‘how-to’ guide includes links to resources, databases, case studies and other tools for all investors to use, from pension funds to endowments to asset managers.

The first-ever, comprehensive, online toolkit for investors to evaluate and understand water risks was released today by the sustainability nonprofit organization, Ceres, along with an analysis of water risk in major global indices.

The Ceres Investor Water Toolkit was produced in partnership with over 40 members of the Ceres Investor Water Hub, a working group of more than 90 global institutional investment firms within the Ceres Investor Network on Climate Risk and Sustainability. Members producing the toolkit collectively manage $6 trillion in assets.

“Investors are increasingly focused on water risks in their portfolios. The immediacy of these risks can mean total value destruction overnight,” says Monika Freyman, director of investor engagement on water at Ceres.

“The Ceres Investor Water Toolkit, closes a critical gap for institutional investors who have long sought a how-to-guide for integrating water risks into portfolio management and decision-making.”

For the past several years, the World Economic Forum has ranked water as a top global risk, due to competition for dwindling resources, climate change and weak governance. The increasingly extreme nature of water-related weather events, and the tendency for local communities to react swiftly to existing or perceived corporate impacts on water supplies, drive the immediacy of water risks.

“Investors still need help to understand their exposure to water-related risks, and indeed water-related opportunities,” says Piet Klop, senior adviser of responsible investment

at PGGM. “This Toolkit nicely summarizes the different approaches to quantify and mitigate the business value at risk.”

The Investor Water Toolkit is available for free.

“The Ceres Investor Water Toolkit contains valuable resources to help us look beyond individual company risk and discover the material water risks that are embedded in every asset class, from fixed income to private equity,” says Barbara Zvan, senior vice president of strategy and risk, and chief risk and strategy officer at Ontario Teachers’ Pension Plan.

Ceres Water-Risk Footprint Analysis of the Major Global Indices

To underscore the importance of water risk evaluation, Ceres also released a new water footprint analysisthat shows that the majority of stocks in the MSCI World, MSCI Emerging Markets, S&P 500 and Russell 3000 are in industries with medium to high water risk.

Ceres’ analysis of the four major global investment indices found that for each index, approximately one-quarter of the holdings were in high-water risk industries, such as oil, gas, semiconductors and chemicals, while approximately one-third were in medium-risk industries, such as pharmaceuticals and real estate.  Ceres used materiality maps and indicators from the Sustainability Accounting Standard Board (SASB) to classify industries by water risks. 

Figure 1: Water footprinting of major indices by industry water-risk classification using SASB ( www.SASB.org)  materiality indicators and Ceres classification methods.   

The Ceres Investor Water Toolkit also includes the following elements:

• Five “Toolkit” modules covering the following topics:
  • 1) Understanding and evaluating material water risks
  • 2) Establishing water-related investment priorities and integrating them into decision-making
  • 3) Buy/sell analysis (methods for embedding water risk into daily decision making)
  • 4) Portfolio and asset class analysis of water including water risk heating mapping and portfolio footprinting case studies.
  • 5) Engagement resources and trends related to water
• A summary of many existing datasets, tools and resources related to corporate water risks out in the market
• Recommendations and methodologies for analysing water risks by asset class, including private equity and municipal bonds with associated water-engagement questions
• Numerous datasets, resources and case studies written by investors showcasing real world examples of water risk integration, such as case studies by SBA Florida and ACTIAM delineating their water footprinting techniques. Other case studies, such as by the Park Foundation, showcase how to strive for investment water goals and priorities, while others highlight how to use scenario analysis and water risk modeling (Citi) or how to take a systems-approach to managing water risks (TIIP).

“This is a comprehensive, publicly available web resource that was created for investors, who need to understand the water risks embedded across their entire multi-asset class portfolios,” says Lydia Miller, senior vice president at Dana Investment Advisor. “There are many useful tools that help companies evaluate their own water risks, but for an investor, examining the totality of water risks and opportunities is a must.” 

Source: Ceres

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Taxonomy

• Water Risk Tools
• Insurance & Risk Management
• Risk Assessment
• Water Risk
• Investment Planning
• Investments
• Responsible Investment
• Investment Management
• Risk Analysis