Water risks, Stranded Assets, and the power of disclosure
By Dr Patricia Calderon, Associate Director for Water Security at CDP
CDP recognises that disclosure is fundamental for the transformation we need to tackle the water crisis. It provides a roadmap and accountability mechanism. Properly harnessed, markets can deliver our global water goals at scale. They are the self-generating sources of innovation and financing that transform economies. For 10 years, companies have been disclosing voluntarily to CDP on water. We now endeavour Financial Institutions (FIs) to engage in disclosure to harness the power of sustainable finance.
CDP and Planet Tracker’s report High and Dry: How Water Issues Are Standing Assets – CDP has been timely released, as the global water crisis becomes ever more tangible. The report highlights that water risks are material to FIs. First, CDP 2021 water data showed that 134 company across various industrial sectors have the potential for closure of their operations due to water risks. We then dived into the causes and financial implications of water risks for real cases of stranded assets in four resource majors, coal, electric utilities, metals & mining and oil & gas. These were the Carmichael Coal Mine, Oyster Creek Nuclear power station, Pascua-Lama gold mine and Keystone XL oil pipeline extension, which represented a combined US$15.5 billion already stranded or at risk. Substantially, they resulted from a convergence of physical, reputational and regulatory water risks.
Current global water stress mapping shows that selected energy infrastructure is located in water stressed areas, a situation projected to increase. Importantly, CDP 2021 data also showed that there is a perceived lack of awareness from companies in these sectors on the convergence and impact of water risks. This shows that future stranding events are likely for the resource majors we looked into; and hence the importance for companies to consider water risks, and how to grow differently minimising their reliance on water.
With US$327 billion of financing arrangements due over the next 5 years for the top 42 largest global companies in these resource majors, financial institutions must now consider: assessing water risks, disclosing and managing water risks across their portfolios, engaging companies, investing in water crisis solutions, and advocating for stronger regulation. To aid the market, CDP issued this year its first-of-its-kind water related disclosure request to 1,200 publicly listed FIs, with insights to be released in time for the UN2023 March Water conference. By mobilising financial institutions at scale on water security, we aim to guide and better inform their decisions.