March saw the water world descend on New York for the UN Water Conference, the first of its kind in 50 years, and a halfway point in the Water Action Decade. With climate at the top of the agenda, water is often treated as an afterthought, if at all. However, the two are inextricably linked, as every 1 degree of warming will likely bring a 20% drop in renewable water resources, and an increase in pollution¹. Perhaps put best by Cate Lamb of the CDP “unlike fossil fuels, for which we have alternatives, there is no alternative to fresh water”. And herein lies the challenge; a world of growing and demanding populations and corporates all facing scarcity of water- a finite resource, compounded by climate change. No small task by any measure.

Few were overtly hopeful going into New York. Unlike COP21 which formulated the binding Paris Agreement, the UN Water Conference was only going to have voluntary commitments, the ‘Water Action Agenda’: a non- binding collection of pledges from the public, non-profit and private sectors. This seemingly stunted the success of the conference from its inception as without binding commitments, the drastic change that is required to deliver SDG6 (clean water and sanitation) in the face of “vampiric overconsumption” seems unlikely². However, the UN Water Conference and its side events, World Water Day and New York Water week succeeded in pushing the urgency of the water crisis into public consciousness. Water on the front pages of newspapers and reported in the FT and other financial publications was perhaps the greatest success of this summit. Perhaps it may be a surprise to hear that COP27 in Sharm El-Sheikh was the first COP to include water on the official agenda. However, after the profile of water scarcity and the action required for SDG6 was elevated in New York I doubt we will see a COP going forward without water high on the agenda. New York cemented the idea that you cannot separate water from climate or rather sacrifice one at the behest of the other. For a truly Just Transition we must think of both, together, at all times.

The role financial institutions can play in building water resilience is becoming a louder ask from the international community; to mobilise capital to fund solutions, to ensure water risk is factored and priced into investment decisions and to engage with holdings to encourage best practice. The Global Commission on the Economics of Water published a seven-point call to collective action to achieve SDG6, which emphasised the need to price water effectively, mobilise stakeholders to catalyse solutions, treat water as a global common good and reshape the governance of water as steps required to transform our relationship with water. The clarity of what is required for water security in this report (amongst several others) aids stakeholders in mapping out their roles to help champion SDG6. It particularly helps lay out where financial institutions can have the most impact on water security. In addition, the CDP highlight how there are significant opportunities for corporates and institutions which can integrate water risk into their business plans, with opportunities worth an estimated $436bn³. The incentives for ensuring water security and safe sanitation for all are therefore significant socially and have the capacity to be significant financially too.

As an asset manager, our role in building water resilience is two-fold; to ensure that companies selected for our Funds take water resilience and security (where material) into account, and to engage with our holdings to challenge and encourage best practice, offering advice and sharing knowledge. As bottom-up stock pickers, water is one of many parameters we assess for companies to be included within our Funds and within our Responsible and Sustainable Strategies. Although many corporates are still in the nascent phase of disclosing information on water it has always been a consideration in our ESG assessment of potential stocks, and indeed is a core priority for several of our funds.

Water is one of our engagement priorities for 2023 , although it’s certainly not the start of our interest and understanding of water related risks and impacts. 2022 saw the team lead an engagement with our water utility holdings to challenge and understand why river pollution in England & Wales continues to be a significant problem. In this engagement we also spoke to the regulator Ofwat and the Environment Agency to understand what the industry’s main challenges are, which seem to include a lack of longevity in planning, dated technology, a lack of new technological innovation, poor management and perhaps most crucially, pricing water appropriately. Challenges which seem to echo, perhaps, the global state of water, rather than just regional English water utilities.

Professor Mazzucato called on the need for a “proactive and ambitious” approach on water, something we hope to build towards with water a core priority for us over the next 12 months⁴. EdenTree have long participated in the CDP non-disclosure campaign, encouraging corporates who have failed to respond to previous requests by the CDP to self- report on carbon, forests and water security. This year is no different, improving company disclosure is a core priority for all responsible investors, as without data the level of risk and impact cannot be ascertained- we look forward to some positive engagement on water through this campaign. We are also running a high level ‘water footprint’ of our high usage and impactful sectors, to fully assess their impact and engage with them to encourage best practice and ensure they too are being ‘proactive and ambitious’ on water. As with climate, many sectors with a high impact on water are inherently positive and necessary for human health and innovation; pharmaceuticals, chemicals, semi-conductors and agriculture to name a few. We expect to publish our progress on water management and our engagement outcomes as a report over the next 12 months. This report will be the third instalment (and the next 6 year update) of EdenTree’s assessment of water stress, resilience and opportunity. Our Thirsty Planet Insight was first published in 2012, and the second instalment Thirsty Planet Revisited published in 2017. We are also collaborating with a variety of institutions to form partnerships to share sector best practice, and through investor coalitions, to use our combined weight to drive change towards building resilience and security in water- more updates on this to come!

Water is inherently interconnected, its disrespect of national borders, the fact we all rely on it for survival and the understanding that it runs across all of the UN SDGs, must ensure that it is high on the agenda for action, for which financial institutions such as EdenTree must play a part.

Source

1. Climate change threatening access to water and sanitation | UN News
2. UN warns against 'vampiric' global water use - BBC News
3. CDP_Water_Global_Report_2022_Web.pdf
4. Global fresh water demand will outstrip supply by 40% by 2030, say experts | Water | The Guardian