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New WEF report analyzes global investment gaps around risks to water security

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Global systemic risks table
Six global systemic risks that affect global asset owners. Source: WEF

A new World Economic Forum (WEF) report identifies water as a global systemic risk that could have an annual investment gap of $670 billion in relation to water security and water investment opportunities around food and energy production, as well as water quality and infrastructure.

One of Canada’s largest asset managers, British Columbia Investment Management Corporation (BCI), in particular, identified water risk as a top engagement issue in a report that also analyzed investment gaps around climate change, geopolitical stability, technological evolution, demographic shifts and negative interest rates.

BCI, which is invested in sectors that rely heavily on water, such as utilities, energy, construction and oil and gas, noted that governments are increasingly partnering with institutional investors to protect functioning natural resources and develop water infrastructure to secure the supply and distribution of clean water.

“Cross-sector dependency on water by households, agriculture, industry, energy and transport make water scarcity and threats to water quality a significant investment risk,” states the new WEF report, entitled Transformational Investment: Converting Global Systemic Risks into Sustainable Returns. It looks at the inherent complexities that create opportunity and risk for investors.

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The WEF report suggests that an additional investment of $1.7 trillion until 2030—about three times the current investment levels—is needed to achieve the sustainable development goal of ensuring availability and sustainable management of water and sanitation for all. Broader needs for water infrastructure range from $6.7 trillion by 2030 to $22.6 trillion by 2050.

“There is mounting pressure on companies from investors, regulators, customers and employees to demonstrate their resilience to rising climate volatility,” said John Drzik, chairman of Marsh & McLennan Insights, in a statement to WEF. “Scientific advances mean that climate risks can now be modeled with greater accuracy and incorporated into risk management and business plans,” he added.

The report notes that there are 286 transboundary river and lake basins and 592 transboundary aquifers shared by 153 countries. The River Nile, for example, flows through 11 nations.

Also, in the report BCI stated that it must use “water security as a lens to view sector-based impacts and opportunities.” It carries out detailed research to understand technological developments providing adaptive capacity to mitigate the risk of water stress. The investment firm also noted that it engages and advocates for better disclosures on water use and efficiency and for investee companies to adopt strategies to help alleviate and manage water stress-related risk to the business.

The risks identified in the new report are based on WEF’s Global Risks Report 2020.

That report states that the risk of global water crises has been in the top five of the WEF’s most impactful risks to society most years since 2012. Water crises are defined as a significant decline in the available quality and quantity of fresh water, resulting in harmful effects on human health and economic activity.

Water scarcity will increase as well—it already affects a quarter of the world’s population,” states the report, which notes that water was a major factor in conflict in 45 countries in 2017.

Water crises top other societal risks such as infectious diseases, food crises, failure of urban planning, and involuntary migration.

The likelihood of global water crises ranks eight out of 10, with extreme weather taking top spot for the risk of becoming reality. Extreme weather conditions are putting populations around the world at risk of food and water insecurity, the report states.

According to a WEF survey within the risks report, 86% of respondents listed water crises as a risk that is almost certain to increase in the years to come.

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