Work on filling data gaps and capacity building needed to shine a light on water security risk.
Water impacts are key data gaps across multiple financial risk areas including credit risk ratings and climate risk.
This theme cut across a panel discussion focused on water stress at ESG Investor’s Nature Data for Institutional Investors event.
John Willis, Director of Research at Planet Tracker, said the NGO had been working with the London School of Economics (LSE) on research into how nature-related factors impact credit ratings.
“That’s really important for sovereign bonds clearly and at the moment water stress is not a big issue, soil is, water is not, which is actually strange in many ways,” said Willis.
He continued that water risk issues were having an impact on supply chains, noting that on the Panama Canal this year drought and water scarcity is heavily disrupting global trade.
Sue Armstrong-Brown, Global Director, Environmental Standard and Thought Leadership, at global non-profit disclosure platform CDP said that financial institutions they worked with struggled to measure their portfolio impact on water security.
“It simply wasn’t a priority,” she said, “It’s just so low down the ‘to-do’ list. “We need to do that capacity building job,” she said, citing the need for more water-related information, tools and methodologies.
“New dawn” for data
Armstrong-Brown added that if financial institutions acquired a greater understanding of water security alongside climate, there would be the opportunity to solve both sets of problems.
The Taskforce on Nature-related Financial Disclosures (TNFD) guidance enabled early discussions on the issue, according to Armstrong-Brown, adding that new things, such as investor engagement collaborations coming into the market that will help “reframe the relationships”.
“We need to stop trying to treat water in isolation from completely related and intertwined multi-dimensional topics like climate and land,” she told onlookers. “We’re going to see a new dawn in the development of data to do with water security.”
In September, the TNFD published its final recommendations for nature-related risk management and disclosure, serving as a tool to operationalise the achievement of Target 15 of the Kunming-Montreal Global Biodiversity Framework (GBF).
The final recommendations are science-based and voluntary, building on the market’s experience with, and progress on, climate-related reporting. They are closely aligned to the disclosure framework developed by the Task Force for Climate-related Financial Disclosure (TCFD), incorporating the same four conceptual pillars: governance, strategy, risk and impact management, and metrics and targets.
In addition, they are consistent with the global sustainability disclosure standards of the ISSB and the impact materiality approach used by Global Reporting Initiative (GRI) and incorporated into the new European Sustainability Reporting Standards (ESRS), which underpin the EU’s Corporate Sustainability Reporting Directive (CSRD).
Satellite data was also discussed as one nascent way to tackle risks such as water security during the event.
Andrew Hodge, CEO at freshwater intelligence firm Aquascope, said that there is “huge demand” for water security data from the space sector.
“We’ve heard about satellite imagery starting to lift the lid on deforestation,” he said, while acknowledging that the “challenge, however, is how to turn those proxies into “real, actionable data” as humans move “closer to the edge of what nature can provide”.