World Water Day, held on March 22, aimed to raise awareness of the 2bn people living without access to safe water.
This year it also marked the start of the UN’s 2023 water conference, taking place over three days in New York. It was a rare occasion on which heads of state from around the world gathered to discuss the security of the world’s water supply.
Naturally, the conference has lofty aims. As UN secretary general António Guterres put it: “The UN 2023 water conference in March must result in a bold water action agenda that gives our world's lifeblood the commitment it deserves.”
The UN’s sustainable development goals, used as a reference point in many sustainable and impact investing strategies, refer to this: SDG six aims to “ensure availability and sustainable management of water and sanitation for all” by 2030.
However, at present this goal sits against a stark reality.
Investment institutions are already stepping up their stewardship efforts with regard to water."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 cent per year," according to a 2020 study by the UN.
It also states that "the world could face a 40 per cent global water deficit by 2030 under a business-as-usual scenario".
The conference aimed to compile a water action agenda to accelerate implementation and improve the impact of efforts to deliver on SDG six.
With time running out and major investment needed to achieve that goal, investors are increasingly looking for ways to support this effort.
Investors call for action from governments and companies
Conscious of this emerging risk, in February, 30 investment institutions also signed an open letter, co-ordinated by environmental reporting specialist CDP, calling on “all governments to step up their collective response to the water crisis".
This call followed the launch of the Valuing Water Finance Initiative in August 2022 by a group of asset owners and asset managers seeking to tackle some of the key issues.
The VWFI aims to address water-related risks in investing by "engaging companies with a high water footprint to value and act on water as a financial risk and drive the necessary large-scale change to better protect water systems".
Managers are getting more specific about the kind of reporting and behaviour they expect from companies on responsible water use.Its 64 signatories have almost $10tn (£8.2tn) of assets under management.
The VWFI is currently targeting 72 companies for engagement, most of which are in the food and beverage, apparel, and technology industries.
It outlines six expectations that it expects large companies to meet by 2030, covering water quantity, water quality, ecosystem protection, access to water and sanitation, board oversight, and public policy engagement.
Although such co-ordinated action is still in its infancy, investment institutions are already stepping up their stewardship efforts with regard to water.
Investment stewardship efforts on water already intensifying
A recent Morningstar research paper found that managers are getting more specific about the kind of reporting and behaviour they expect from companies on responsible water use.
We see evidence of this in their policies for voting at shareholder meetings and engagement with companies on sustainability issues.
For example, BlackRock – as part of its wider policy on natural capital topics – mentions that it looks to companies to disclose detailed information on their approach to managing material, natural, capital-related business risks and opportunities, including how their business models are consistent with the sustainable use and management of natural resources such as air, water, land, minerals and forests.
We can expect investors to place more emphasis on water-related themes.It says: "To support investors’ assessments, it is helpful for companies with material dependencies or impacts on natural habitats to disclose how they measure their progress on key issues such as water conservation."
Our research has also found substantive comments on water-related sustainability expectations by eight managers: AllianceBernstein, BNP Paribas, Boston Trust Walden, Calvert, LGIM, Robeco, Schroders and UBS.
Their policies cover three key areas:
- Focus on water as part of a holistic environmental approach.
- Encouraging better corporate reporting and clearer policies.
- Support for shareholder resolutions addressing water-related risks.
As interest in water risk grows, against a backdrop of wider concern about natural capital issues linked to climate and biodiversity preservation, we can only expect investors to place more emphasis on water-related themes in future when selecting the companies they invest in and engage with.
Lindsey Stewart is director of investment stewardship research – ESG and sustainability at Morningstar
