Work Streams

Water Scarcity

Challenges of Water Scarcity: a Business Case for Financial Institutions

"We now understand that both business and society stand to benefit from working together. And more and more we realise that it is only by mobilising the corporate sector that we can make significant progress."

Kofi Annan
Secretary General
United Nations

UNEP FI is collaborating with the Stockholm International Water Institute (SIWI) to identify the potential challenges for financial institutions rising from water scarcity. This study was supported and financed by the Swedish International Development Cooperation Agency (Sida).

The potential risks associated with water scarcity have become an emerging risk of strategic importance to businesses and their financial backers around the world. This is becoming even more important with rapid globalization within the business supply chain. Therefore, a business case for strategically addressing water challenges is getting stronger. While each organization must relate to water in its own capacity, the business case for the financial sector will come from acknowledging the potential risks associated with water scarcity and its potential effects on how they do business, thus encouraging them to seek innovative sustainable solutions for mitigating these risks.

The study identified six key risk drivers which can pose serious challenges for financial institutions and investors in the coming years. Seeking solutions for these risk drivers can serve as a platform for good business and water sustainability.

Risk Drivers

1. Drought and drought cycles 
2. Water quality concerns 
3. Institutional and managerial capacity for effective water governance
4. Political and regulatory conditions 
5. Cross-boundary water and risks of conflict 
6. Local communities and stakeholders concerns

Some of the conclusions refer to:

• Water scarcity can become, if not already, a considerable source of risks to projects and investments. The corporate sector need to assess this fact and work together with society to make progress.
• Assessment of water scarcity risk must be included in project planning, business projections and business opportunities due diligence
• A collaborative approach with relevant stakeholders can build credibility, trust and much needed partnerships to anticipate and mitigate negative risks.
• Financial institutions need to understand how water scarcity will affect their core businesses and that of its business partners.
• Water supply problems can open a window to improve operational performance and efficiency. This can give a company a competitive advantage on its peers and this is an investment opportunity for financial institutions to propose sustainable improvements which can benefit business and water sustainability.

Contact

Remco Fischer
water [at] unepfi.org