Moody’s sector report stresses social risk implications of increasing water stress and “inadequate” water management.
Governments, corporates and investors must collaborate internationally to tackle the growing issue of water risk, as the momentum behind, and focus on, the topic grows.
A report from financial services firm Moody’s Investor Service said that water shortages have the potential to “disrupt economic activity and cause social turmoil”, with rising water stress and inadequate water management able to “heighten exposure to social risk”.
It additionally flagged that “inadequate or unequal” access to water can increase social tensions and hurt local incomes, while poor management of wastewater can “threaten” public health and safety.
The report also found that 36 emerging market economy rated sovereigns have ‘high’ or ‘very high’ credit exposure to water management considerations. These emerging economies are “generally more vulnerable” to such risks than advanced economies due to a lack of “sufficient infrastructure” to access clean water supplies, making them more prone to water pollution and sanitation issues.
Ram Sri-Saravanapavan, Vice President of ESG and Climate Risk at Moody’s Investors Service, told ESG Investor that addressing water risk goes “beyond boundaries”, underlining the importance of “working together as one global sector to have a long-term plan for the future”, due to water being a “finite resource”.
“There needs to be a lot of investment in infrastructure globally to ensure clean and safe water,” he said.
A global problem
Water is already high on the international policy and investor agenda, with the UN’s Sustainable Development Goal 6 (SDG6) seeking to ensure access to water and sanitation for all.
An estimated two billion people around the world currently lack access to safe drinking water and 40% of the world’s population are affected by water scarcity. According to data from the World Meteorological Organization, a total of 3.6 billion people struggle to get enough water to meet their needs for at least one month per year.
The UN estimates that meeting drinking water, sanitation and hygiene targets by 2030 will require a four-fold increase in the pace of their progress, with 1.6 billion people set to lack safely managed drinking water, 2.8 billion safely managed sanitation, and 1.9 billion basic hand hygiene facilities. It also projected that by 2050 six billion people will suffer from clean water scarcity.
UNICEF research found that half of the world’s population could be living in areas facing water scarcity by as early as 2025, with up to 700 million people potentially being displaced by intense water scarcity by 2030.
Analysis by environmental non-profit CDP said that the financial impact of water risks, such as shortages or pollution, could reach as much as US$392 billion. By 2025, two-thirds of the world could face water shortages and at the current global water consumption rate the situation will severely worsen.
“This is already becoming a very important topic to governments and companies”, Sri-Saravanapavan said. “For advanced economies it’s a problem, but it’s really an existential problem for developing countries”.
Sri-Saravanapavan added that in terms of priority for advanced economies, it “might not be on their top five lists right now, but it will become existential in the future”.
“Urgent action” required
The UN has projected that water demand will increase about 30% by 2050 from current levels, while a report from the 2030 Water Resources Group estimates that 40% more water will be needed by 2030 if the global population reaches nine billion.
Sri-Saravanapavan noted that there is ” only a certain amount of water available, which means there will be more investment in smart irrigation systems, recycling technologies, and efficient desalination methods”.
According to data from the World Wide Fund for Nature freshwater is incredibly rare, with only 3% of the world’s water being and two-thirds of that in frozen glaciers. However, 70% of the world’s surface is covered by water – primarily oceans – meaning desalination in particular could play a key role in addressing water scarcity.
Sri-Saravanapavan said that it is “possible” for the global demand for water to be met but stressed that it will “take a lot of urgent action”.
“Look at what happened during COVID – how much momentum there was, how quickly the globe was able to collaborate,” he added “If that energy, collaboration and momentum can be harnessed for environment risk, including water, it may be possible to manage future water management risks”.
“This is already becoming a very important topic to governments and companies”, Sri-Saravanapavan said.
Emerging market exposure
According to a study from the University of Oxford, more than 90% of the world’s population is estimated to face increased risks from the compound impacts of extreme heat and drought, with the report underlining its potential impact for widening social inequalities.
It noted that these joint threats may have “severe socio-economic and ecological impacts” that could “aggravate” social inequalities and are projected to have “more severe impacts on poorer people and rural areas”.
Moody’s report noted that constraints on water usage can also increase exposure to social risk by “limiting economic growth”, especially in countries that rely on water-dependent industries such as agriculture, mining and tourism.
It also said that poor water management practices can leave emerging market economies “particularly vulnerable to problems” with access to basic services, food insecurity and other health and safety issues.
Sri-Saravanapavan highlighted that poor water management could cause range of health issues, including waterborne diseases, as well as other diseases from chemical pollutants.
He additionally noted that if water is “not managed well” it can lead to social issues and resource conflict, while “inadequate” water access can “increase social tension”.