Failure to focus on water-related issues risks derailing efforts to combat climate change and biodiversity loss.
Industry experts have underscored the need for water to be considered in tandem with climate and nature-related risks, highlighting the interconnectedness of all three in avoiding planetary boundary tipping points and ecological breakdown.
Mathilde Mesnard, Co-ordinator for Climate and Green Finance at the Organisation for Economic Co-operation and Development (OECD), said that rather than viewing climate as a “summit” that needs to be reached, it and nature should instead be recognised as “twin peaks”.
Speaking at the OECD’s Forum on Green Finance and Investment 2023, she also noted that there is “no way we can meet net zero goals without nature”.
Martha Rojas Urrego, Commissioner at the Global Commission on the Economics of Water, went one step further and stressed that there are “very clear” links between nature and climate change, but little focus is paid to their interlinkage of water.
Speaking on a panel at the event, she stressed that a solution to the climate and nature crises will not be found without considering water-related risks in tandem.
“In addition to the ‘twin peaks’ of climate and nature, water should be a third,” said Rojas Urrego, noting her surprise that water receives so little attention.
No water, no nature
Panellists at the OECD event reinforced the importance of understanding the interconnectedness between climate and nature.
Richard Mattison, Vice Chair at S&P Global Sustainable1, said that the global economy’s “reliance on nature” highlights the “critical importance of greater transparency for market participants on nature-related risks and opportunities”.
Analysis from PwC found that 55% of global GDP, equivalent to an estimated US$58 trillion, is moderately or highly dependent on nature.
The UN has previously said that water and climate change are “inextricably linked”, with the latter “exacerbating” both water scarcity and water-related hazards, such as floods and droughts. It also pointed out that rising temperatures are disrupting precipitation patterns and the “entire water cycle”.
Today, as many as 1.1 billion people worldwide lack access to water and at the current global water consumption rate the situation will severely worsen. By 2025, two-thirds of the world could face water shortages.
Rojas Urrego said that “it’s great that focus on climate change is improving, focus on biodiversity, on the oceans, but water still remains an issue that is not given sufficient attention”.
She stressed that water and biodiversity are “absolutely related”, adding that “we need water for nature” and that “if we don’t have water, nature doesn’t function”.
“Ecosystems such as wetlands, swamps and peatlands are like sponges that keep water and release it,” Rojas Urrego said. “When we lose these ecosystems, then we have water disasters.”
Peatlands store twice as much carbon than all the forests in the world and hold over 25% of soil carbon despite only covering 3% of the Earth’s land area.
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.
Lindsay Stewart, Director of Investment Stewardship Research at Morningstar, previously told ESG Investor that the sustainable management of water risks could benefit from “joined-up thinking” through the inclusion of a specific focus on water as part of asset managers wider engagement efforts on natural capital and biodiversity.
“If we’re looking at a future with less water and the big impacts on businesses and investments, I think that making these links between biodiversity and water are going to be crucial,” Rojas Urrego said.
“We need to get action going on biodiversity”, Rojas Urrego said. “Water is disappearing, climate change is happening.”
She noted that it important to recognise that “water is scarce”.
Water covers 70% of Earth’s surface, but freshwater is incredibly rare, according to the World Wide Fund for Nature. In fact, just 3% of the world’s water is freshwater, and two-thirds of that is in frozen glaciers.
“This is affecting the lives of all of us, companies, and financial institutions,” Rojas Urrego said, noting the need for action to ensure investments and financial flows are going to a nature positive future.
Tsumani of water risks
A report from financial services firm Moody’s Investor Service released earlier this year 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 also flagged that “inadequate or unequal” access to water could increase social tensions and hurt local incomes, while poor management of wastewater can “threaten” public health and safety.
Further, research by the United Nations Environmental Programme (UNEP) found that more than 90% of natural disasters are water-related, including drought and aridification, wildfires, pollution and floods.
The UNEP underscored the impacts these disasters can have, including death, injury, loss of livelihoods and displacement and place a huge burden on societies, economies and the environment
Rojas Urrego said in terms of mitigating risks or preventing natural disasters there is evidence that by keeping, restoring and managing ecosystems it can decrease the associated biodiversity and climate change risks.
“Protect these peatlands and you are going to have benefits for managing risks for biodiversity, water and climate change,” she added.