Financial firms face $225 billion in water-related losses, analyst estimates show

  • 69% of companies face a “substantial” water risk -CDP
  • 33% of financial institutions do not assess risk
  • Water supply deficit could reach 40% by 2030 -UN

LONDON, May 5 (Reuters) – Financial institutions face losses of at least $225 billion from water-related risks, with a third doing nothing to assess the potential impact, according to a report by leading environmental disclosure platform CDP and Planet Tracker.

The UN has warned of a 40% supply shortfall by 2030 if patterns of water consumption and production do not change and the so-called water risk, by the through floods, droughts or pollution, is set to become a growing problem for businesses over the next decade.

The most common impacts reported to CDP, whose data is used to inform investment decisions for financial firms managing more than $130 trillion in assets, included reduced production, increased costs and lower revenues.

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In its first analysis of its kind, CDP and the nonprofit Planet Tracker analyzed water safety survey submissions from 1,112 companies, in which 69% reported a risk of impact. “substantial” on their activity.

Of the 377 listed financial institutions reporting to CDP, 33% said they did not assess their exposure to related risks, which can include fines and other liabilities, shareholder lawsuits or inability to obtain insurance.

By underestimating risk, banks, investors, and insurers could allocate too much capital to businesses and projects that may ultimately prove unprofitable, resulting in tying up assets and canceling debt. investment or loan.

“Financial institutions need to understand how exposed they are to these risks and take immediate action before it’s too late,” said Cate Lamb, global director of water security at CDP.

CDP analyzed the $225 billion value-at-risk of a subset of 499 of the largest companies for disclosing a financial projection of potential associated costs. So the figure for all companies in the world would be higher.

The water crisis is already causing billions of dollars in losses, CDP said, pointing to related write-downs in the oil and gas, electric utilities, coal and metals, and mining sectors.

The CDP and Planet Tracker have also identified the state and public institutions most closely linked to 42 of the most water-impacted companies in the world, through equity investments or loans.

They found that the 20 most exposed held a total of $2.7 trillion in equity and had lent $2.5 trillion over the past decade. The companies also have about $327 billion in financing set to mature over the next five years.

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Reporting by Simon Jessop; Editing by Alexander Smith

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