How Green is This Blue Gold?
By Leslie Lowe 8 February, 2010
Leslie Lowe of the Interfaith Center on Corporate Responsibility (ICCR) asks if water is the new oil.
Water, the world’s third-largest industry after oil and electric power, is the most capital intensive of all utilities and arguably the most essential. As the dimensions of the global water crisis and the vast need for capital in water services become apparent, private investment in the water industry has surged. Growing freshwater scarcity and increasing demand are giving rise to investment strategies based on water as an increasingly scarce commodity, not unlike oil, with the prospect of ‘peak water’ summoning visions of peak profits from what is already being called ‘blue gold’.
Replacement of aging water infrastructure in developed countries as well as the demand for new infrastructure in emerging markets flags enormous profit potential to investors. China alone plans to build 375 wastewater treatment facilities. According to World Bank estimates, $400 to $600 billion in global water infrastructure investments will be needed in the coming years. Increasingly stringent water quality standards and the adaptation of water systems to meet changing climatic and hydrological conditions will create opportunities in all segments of the water industry.
But like all new investment areas, there is the issue of risk – and risk is most acute for companies in the business of providing safe drinking water and treating wastewater. Water service utilities, whether public or privately owned, face multiple, often conflicting demands, which include: delivering safe drinking water at affordable rates from water sources that grow more polluted and more expensive to treat; providing universal access while earning sufficient returns to maintain, modernise and expand infrastructure; and meeting the ever increasing demands for water without depleting local water resources.
To determine how well the water services sector is managing these risks, the Interfaith Center on Corporate Responsibility (ICCR) surveyed data on water-related environmental, social and governance (ESG) performance disclosed by twelve major water service utilities (two government-owned and ten investor-owned)1. Twenty-one, water-related ESG performance indicators were used to evaluate whether:
- Management systems are in place to capture data needed for the prevention of pollution and the identification of inefficient water use while maintaining rate-payer satisfaction and stewardship of local water resources;
- Appropriate water risk management policies exist and are being followed; and
- Data are being used to monitor trends and progress in attaining benchmarks for continuous improvement.
The survey found wide disparities and significant information gaps in the reporting, particularly for the largest investor-owned water utilities that serve hundreds of millions of consumers around the world. Surveys of water-related performance in other sectors have found a similar lack of disclosure of material ESG data2.
Responsible investors need consistent, comparable and comprehensive data on water-related performance in order to evaluate risk-adjusted returns and identify opportunities for investment, not only in the water services sector but in all sectors facing water risk. Water-related performance data provides critical information about enterprise efficiency and innovation that will inform investment decisions by governments, and private investors, as water stress intensifies.
If we are to manage the global water crisis, then all stakeholders – that is to say everyone who has an interest in clean water and the ecosystems that make it available – must be engaged in water governance. This requires that essential water-related performance information from both public and private enterprises that use and control water resources, is available for all stakeholders.
One way to achieve this is through the creation of what we call a “global data commons” for water. The reporting tools exist, and the Internet provides the platform on which to build this, company-by-company, region-by-region. We just need to make sure that companies and governments fill in the blanks.
1 Interfaith Center on Corporate Responsibility, “Liquid Assets: Responsible Investment in Water Services,”2009
2 CERES and Pacific Institute, “Water Scarcity & Climate Change: Growing Risks for Business and Investors.”2009
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