Water stress, a global concern
Essential for life on Earth, water faces an existential challenge with the distressing decline of numerous freshwater basins worldwide. Water stress increasingly poses a risk to the stability of our planet, as it can cause water-dependent ecosystems to collapse. As such, freshwater scarcity is listed in the top five long-term risks in the last edition of the World Economic Forum Global Risk Report.1 Its ramifications extend across multiple facets of sustainable development, including human hygiene, food security, and involuntary migration.
Water consumption is also reflected in the Planetary Boundaries Framework.2 The nine planetary boundaries, which include land system change, biochemical flows, and novel entities, are key biophysical processes that regulate the resilience and stability of our planet. Recent research reveals that the freshwater change boundary, together with five other boundaries, have now been transgressed,3 meaning our planet is in a ‘zone of increasing risk’. This stresses how important it is to adequately address this issue in our SDG Framework.
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Recent research reveals that the freshwater change boundary, together with five other boundaries, have now been transgressed, meaning our planet is in a ‘zone of increasing risk’
Data limitations
The Aqueduct Water Risk Atlas spotlights the regions around the globe that are grappling with acute water stress. In these places, the extraction of water exerts disproportionate pressure on already fragile ecosystems. Ideally, we would adopt a science-based approach and systematically assess companies’ volumes of water consumption against the regeneration rates of local watersheds. Such a lens can help avoid demand and supply imbalances. However, this requires spatially explicit data on water consumption along the value chains of thousands of companies, which is unfortunately not available. Instead, we have to take a global approach, although we can still take into account local context when assessing water stress.
Figure 1: Water stress around the globe
![Figure 1: Water stress around the globe](https://images.ctfassets.net/tl4x668xzide/1aim4OnHdEP1MgSMnfWYQi/c8ef5d28d86a926e419c6594eaa2b67e/2023-11-15-navigating-the-waters-assessing-company-impact-on-water-scarcity-fig1.jpg?fit=pad&w=800&h=348&f=center&fm=webp)
Source: Aqueduct Water Risk Atlas4
How we assess company impact on water scarcity
In consonance with the philosophy of our SDG Framework, we want to capture significant impacts that issuers have on water scarcity. Therefore, our assessment focuses on companies with substantial operations in regions experiencing high levels of water stress. In addition, we only include companies that operate in ‘critical impact sectors’ as defined by the Carbon Disclosure Project.5
Next, we opt for a forward-looking approach that assesses whether the trends in these companies’ water footprint are in line with a trajectory that brings us back within ‘safe operating spaces’ by 2030, the deadline of the SDG agenda. A recent technical report stressed that we are currently transgressing the planetary threshold for blue water, found in lakes, rivers and reservoirs, with a staggering 161–414 km3 per annum.6 In line with the precautionary principle, we aim for a reduction of 414 km3 of blue water consumption by 2030 to return to operating within the planetary threshold, which scientist have set at 4,000 km3.7 In order to achieve this goal, the world has to reduce its water consumption by 1.417% per year until 2030.
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We want to capture significant impacts that issuers have on water scarcity.
Thus, companies whose water consumption declines by >1.417% per year on average can reasonably be perceived as adhering to a global pathway that is in harmony with the SDGs. Conversely, companies that are not reducing, and even in some cases increasing their water consumption, impede the SDGs. In addition, to avoid assigning positive/negative SDG scores to companies that currently have a high/low water footprint, we set thresholds on existing levels of water consumption. We assign positive and negative scores on SDGs 6 and 15 if companies meet the two criteria listed in Table 1 below.
Table 1: Water consumption and SDG scores
![Table 1: Water consumption and SDG scores](https://images.ctfassets.net/tl4x668xzide/3oDbWtEj4DbINRZImgq3g5/53ba2bfc696f78fcb2db4b979af9404f/2023-11-15-navigating-the-waters-assessing-company-impact-on-water-scarcity-fig2.jpg?fit=pad&w=800&h=122&f=center&fm=webp)
Source: Robeco 2023
As a result, around 20% of the companies in scope for the assessment receive a negative score. In line with the Pareto Principle, this group is accountable for roughly 80% of total water consumption by all companies in scope.
The data used in the assessment reflects companies’ direct water use that occurs in their own operations, as well as indirect freshwater use associated with business practices upstream in the supply chain. This way, vertically integrated companies are not unduly punished for high water footprints compared to those that have outsourced water-intensive activities to suppliers. For instance, food production is often highly water-intensive, though this is typically not reflected in the water use of downstream food producers, as the majority of water consumption occurs during upstream agricultural production.
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We opt for a forward-looking approach that assesses whether the trends in these companies’ water footprint are in line with a trajectory that brings us back within ‘safe operating spaces’ by 2030
Next steps: Water discharge
Whereas water consumption volumes affect the quantity of available freshwater, discharge of untreated water can influence the quality of natural freshwater sources. Due to the lack of company disclosure on discharge water quality, for the time being our focus is on water consumption. However, we actively monitor new sources of information to improve our understanding of the impacts on water quality.
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Footnotes
1 https://www3.weforum.org/docs/WEF_Global_Risks_Report_2023.pdf
2 https://www.stockholmresilience.org/research/planetary-boundaries.html
3 https://www.science.org/doi/10.1126/sciadv.adh2458
4 https://www.wri.org/applications/aqueduct/water-risk-atlas/#/
5 https://www.cdp.net/en/investor/water-watch-cdp-water-impact-index
6 Grafton, R. Q., Krishnaswamy, J., & Revi, A. (2023). TECHNICAL REPORT-The Water Cycle and the Economy-March 2023.
7 https://www.science.org/doi/10.1126/science.1259855
重要事項
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。 ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。 運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。 当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。 商号等: ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長(金商)第2780号 加入協会: 一般社団法人 日本投資顧問業協会