“This summer, we had the worst drought in 500 years in Europe, the worst drought in 1,000 years in the U.S., and the worst drought ever in China.”
I recently attended a talk by Alok Sharma, president of the COP26 Climate Conference that was held a year ago in Glasgow, Scotland. Sharma reflected on what was achieved by the agreement and what still needed to be done, as we head into COP27, which is taking place in Sharm-El Sheikh, Egypt, in early November.
The quote above is one of the key comments made by Sharma. COP26 was the first such conference to make an explicit link between efforts to prevent climate change and those to prevent nature loss. But it is clear—given the unprecedented heat and drought conditions seen across much of the world this year—that risks to water supply are becoming front-of-mind issues for businesses, investors, and policymakers.
“Global water use has increased by a factor of six over the past 100 years and continues to grow steadily at a rate of about 1% per year,” according to a 2020 study by the United Nations. It also states that “the world could face a 40% global water deficit by 2030 under a business-as-usual scenario.” In light of these risks, investors and asset managers are paying greater attention to water as a key theme.
Many are referring to COP27 as the “Implementation COP” as the focus moves away from the Glasgow negotiations toward the specific actions that governments need to take to combat climate change and other connected risks such as water supply. With the conference being held in Egypt—a part of the world with ever-present water-related risks—we expect that COP27 will set an important context for asset managers’ active ownership activities related to water in 2023 and beyond, in the same way that COP26 did for climate. It will also set an important foundation for the UN 2023 Water Conference due to be held in New York next March.
Water Emerges as a Key Active Ownership Theme
My colleague Jon Hale recently wrote about the emerging investment opportunities connected to the theme of water supply and sustainability. As our latest research paper explains, water is becoming a key active ownership theme for asset managers, too.
Data from environment reporting specialist CDP, shown on the chart below, illustrates that many key industries—particularly manufacturing—are exposed to high potential financial impacts from water-related risks that are many times the cost of mitigating them.
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