Water, the world’s most wanted renewable resource, is becoming scarce and companies are getting more and more concerned about its availability and cost.
The potential financial impact from water risk is expected to be thrice as high as that from carbon risk, Barclays has found.
In a research note published June 14, analysts at the UK-based bank identified water scarcity as “the most important environmental concern” for the global consumer staples sector, which is the most exposed sector to water risk.
Barclays said water scarcity could result in a $200 billion impact on this sector, which includes everything from food and beverages to agriculture and tobacco.
It estimated that the global consumer staples sector will incur a cost of $11 billion in the redressal of proactive water management. The cost of inaction is around 18x higher than the cost of action.
Global MNCs such as Unilever, Colgate and Reckitt Benckiser could potentially face a 40-to-50 percent EBITDA impact, even in the less extreme of Barclays’ possible scenarios.
Beth Burks, director of sustainable finance at S&P Global Ratings, referred to water as “one of those classic externality risks” due to its hereditarily low prices, which are now rising across the world.
The average price of water rose by 60 percent in the 30 largest American cities between 2010 and 2019, according to data analysis by Barclays. California Water Futures have constantly increased by as much as 300 percent in recent years, Barclays said.
Water scarcity is really important because there will be serious problems when it runs out, Burks told CNBC.
Barclays added that agricultural commodities are extremely vulnerable to water price fluctuation. They face operational risks and disruption from occurrences such as floods or droughts, and legal cases linked to pollution and higher fines therein.
Companies such as Coca Cola (India) and Constellation Brands (Mexico) have postponed plans to create new facilities due to water-related concerns.
The British bank found that mentions and comments on “water” in company transcripts rose 43 percent in 2020 compared to 2019. This jump reflected an increasing corporate awareness of the risks related to clean water and sanitation.
Reckitt Benckiser told CNBC that it is planning to become “water positive” in all 20 of its current water-stressed locations by 2030.
S&P Global Ratings said that while water scarcity “rarely” impacts a company’s creditworthiness directly, it can have a more subtle impact due to physical, reputational or regulatory risks.