By Thomas Schumann
Climate-linked droughts and water contamination are often overlooked. The private sector needs to do more to protect this precious resource.
As wildfires, hurricanes and other climate-linked disasters grab headlines, an impending climate catastrophe is often ignored, one which threatens the source of life itself: water.
Increasing global temperatures lead to more extreme rainfall patterns, which means certain areas experience more frequent flooding, while others endure prolonged periods of drought. These events affect access to water as well water quality, and they can devastate critical ecosystems. In North America, for example, scientists have predicted the second-worst drought in 1,200 years in the American Southwest and northern Mexico, while on the east coast, encroaching saltwater is wiping out whole forests of mangroves.
At the same time, water demand is projected to increase 50 percent by 2050 due to population growth and urbanization. More people will need water, and less people will have it.
This phenomenon is known as “water stress,” which occurs when water demand exceeds the supply. It is already prevalent around the globe and is projected to worsen in every continent by 2040.
The World Economic Forum calls the issue one of the greatest global threats of our time. Water crises threaten not only the livelihoods of individuals in high water stress areas but also the viability of entire food systems. Additionally, intergovernmental conflicts over water resources — such as with the Grand Ethiopian Renaissance Dam, which could throttle Nile waters to Egypt — are increasing as water becomes scarcer.
The United Nations Sustainable Development Goals calls for a global transformation for people and the planet within the next decade. However, certain outcomes related to its Goal 6, which covers clean water and sanitation, are projected to fall short of the United Nation’s targets if stronger actions are not taken. That goal aims to “achieve universal and equitable access to safe and affordable drinking water for all” by 2030. However, the United Nations Development Programme estimates that 75 percent of the global population may live in water-stressed countries by 2025, and at least 1.8 billion people worldwide are still using contaminated drinking water sources.
Yet water is too often seen as a plentiful resource, and the market is too often left to self-regulate. This has resulted in mismanaged water resources and underinvestment in water risk solutions.
According to DWS Group, ESG (i.e., environmental, social, and governance criteria) and other types of sustainable investment initiatives are imperative for mitigating climate change-linked water risk. The private sector must couple assets with their water impact to encourage integrated water resources management and help reduce water stress worldwide. Furthermore, water risk quantification and investor influence must be leveraged in the finance sector to create meaningful change towards sustainable development.
Investment firms can define and quantify water risk and develop a corresponding framework to guide investors. DWS also recommends creating products with competitive fees that “truly address water and/or other ESG risks” to promote transformational investment.
On the flip side, investors can drive change from the inside out, so to speak, to demand these water risk products and metrics. But however the private sector approaches the problem, one thing is certain: Time is running out, and we must act now to help create a water-secure world.
Thomas Schumann Capital® (TSC) is the world's only sponsor of investable indices, funds, and products for water security, low carbon footprint, and responsible investing, and the sponsor of “Project Greenland”.