Bloomberg’s Views on Water
By Frances Liu, Nathaniel Bullard 10 September, 2013
Liu & Bullard on why water data is crucial in the face of an increasingly water-insecure future
The history of financial information is the history of greater and greater disclosure. Over centuries – since the beginning of double-entry bookkeeping – corporations and governments have sought greater and greater clarity about opportunities and risks, growth vectors and exposure. Bloomberg L.P. was founded to further this effort in fixed income (bond) markets, and now 30 years later, it covers equities (stocks), currencies, derivatives, and one of our newest areas, Environmental, Social, and Governance (ESG). Key within ESG? Discovering and quantifying water risk.
The World Economic Forum in 2013 named the water-supply crises as one of the top five risks facing the world. Increasing incidents of crops scorched by drought, and shipping lanes and energy plants shut down by low water levels present material financial risks. Compounding water crises is the fact that reliable, verifiable and consistent data about supply and demand, cost and price has been historically very difficult to track. Water is both an essential for today’s global economy, but is also frequently mis-priced or over-allocated, and lacks clear data.
But just because something is mis-priced or over-allocated, and lacks clear data, doesn’t mean that companies should not consider it a risk area – in fact, it is just the opposite. It is precisely because water is mis-priced and over-allocated that Bloomberg seeks to disclose it as a risk area for companies. In order to prepare for an increasingly water-insecure future, Bloomberg’s water use and efficiency data is crucial for investors, corporations, and governments to understand and respond to the changes and challenges. Mis-allocations and mis-pricings are risk and opportunity for stakeholders. So how do we go about assessing a company’s water exposure?
>> The following showed a Bloomberg screen with Water data for an individual company:
It is important to note that water isn’t just a risk for companies that produce water. Certainly, water is an issue for a company such as Veolia, or for Nestle. But, it is also an issue for companies which use water in primary production, such as mining firms, oil and gas firms, power generators, and even real estate firms. Investment banks can hedge their financial risks by creating or purchasing financial products; commodities producers can hedge risks in the same way, to some extent. But, it is not possible to completely hedge a company’s exposure to water – it is a physical thing and if a company or a country needs water, it must have it. It is always possible to make another financial product, but water is water – fundamentally, we cannot make any more of it; we can only process it with less energy per unit, or use less of it per unit of output.
As a company, Bloomberg already reports on water-related risks, both through Bloomberg News (which recently covered the extreme water stresses on “China’s coal-fired economy”) and through Bloomberg New Energy Finance (which already contributed thoughts on China’s power sector to China Water Risk here). But part of our goal as an organization is to make the crucial news from news and measurement, to data and disclosure. So, Bloomberg provides multi-year, as-reported company water data, as well as providing Environmental, Social and Governance (ESG) data, news, research and analytics on over 5,000 companies worldwide-seamlessly integrated into its core functionality. The database provides quantified data on company water use, source types, efficiency, and waste water discharge and treatment.
Moving beyond collecting data and comparing it, Bloomberg seeks to be a standard-setter in this area. Through relationships with leading non-governmental and not-for-profit organizations, they are working towards increasing the number of companies disclosing ESG data and towards improving the quantity and quality of this data. Banks, corporations, governments and other entities in over 150 countries depend on Bloomberg’s data to improve transparency, increase liquidity and make fully-informed decisions regarding asset valuations.
Not every company is actively pricing or assessing water risk. That is precisely why it is such an important effort for us to undertake, and an important new measurement vector for governments and corporations.
>> This screen compares water performance of companies in any given peer group:
Current water trends translate into a set of material business risks including reputational, regulatory, litigation and physical risk. Bloomberg provides various analytics to help its users identify these risks from their portfolio. Bloomberg’s ESG Valuation Tool assesses the impact of water cost on a company’s EBIT performance and share price, whereas ESG Country Strategic Risk Tool enables users to assess country sovereign risk based on water, energy, carbon and other ESG risk measures.
>> ESG Valuation Tool:
- Chinese Utilities in Hot Water: BNEF’s Nathaniel Bullard shares key findings of their report including the exposure of China’s Big 5 power companies to water risk. Can China afford to see 25% of her water going sole to power plants by 2030? Or should she prioritise agriculture or cities
- Mapping Water with Aqueduct: With a water supply crisis as a top five risks facing the world, WRI’s Tien Shiao walks us through how Aqueduct can help companies and investors gain perspective
- Investors Say: Water Risk is Beyond Pricing: NBIM, APG, GIC, HSBC and APG on why it is important to measure the impact of the environment on business as the value of water lies in business continuity & value of brands rather than water pricing
- Sink or Swim: As water risks rises in prominence we review whether more investors and corporates are taking action to mitigate risk and seek out opportunities
Read more from Frances Liu →
Read more from Nathaniel Bullard →