Digging Deeper: How WWF’s Water Risk Filter is unearthing new insights in the mining sector
By Ariane Laporte-Bisquit, WWF Water Risk Filter Lead, and Alexis Morgan, WWF Water Stewardship Lead
Mining giant Vale’s latest dam disaster in Brazil is, unfortunately, a tragic reminder of the social and environmental impacts from mining when risks are not appropriately assessed and addressed. Mining companies face a growing number of environmental risks and water is high on the list. With water crises being continuously ranked amongst the top five most impactful risks over the past 9 years by the World Economic Forum, mining companies must act now to tackle the rising tide of water risks.
However, it is not just mining companies that need to be aware of water risks. Investors — many of who are gathering for the Investing in Africa Mining Indaba in Cape Town this week — are increasingly aware of the material risks posed from water risk exposure, and poor response. To gain insight into key water-related risks faced by the mining sector and response actions to address these risks, WWF analyzed over 34,000 asset-level mining data from S&P’s database using the upgraded Water Risk Filter, which offers an unprecedented level of high resolution, best available data and new functionalities to better assess water risks across all industries, including the mining sector.
So, what did our analysis unearth?
1) Majority of mining sites and commodities face high water risks
Mining is a water-intensive industry, requiring water in all stages of its process. However, as highlighted by the Water Risk Filter, the bulk of mining sites are located in parts of the world facing high overall water risk, including India, northern China, central and northern Chile, Peru, South Africa, the western United States and Australia. Of perhaps more interest to investors were some of the commodities identified under high overall water risk: Coal, Bauxite, Iron, Gold, Copper, Lithium, and Titanium. Indeed, our analysis also allows us to explore how different companies are exposed to various water risks on an asset-level basis.
2) Reputational and regulatory risk exposure may be underestimated
Based on our analysis, the Water Risk Filter evaluated that 32% of mining site are exposed to very high reputational water-related risks (risk scores above 3.5 out of 5), compared to 18% and 5% facing very high regulatory and physical risks respectively. However, when looking into CDP data and companies’ annual reports, it appears that a majority of mining companies focus primarily on risks related to water scarcity. Conversely, broader polling of the mining sector by analysts such as EYsuggest that license to operate consistently remains the top risk facing the mining sector. These findings suggest that mining companies are biasing assessments towards physical water scarcity only and consequently underestimating their risk exposure from reputational and regulatory water risk drivers.
By expanding the number of risk indicators (from 20 to 32) and working with new partners, such as RepRisk and Globescan, the upgraded Water Risk Filter’s assessment provides companies with the most comprehensive coverage to assess reputational, regulatory and physical risks.
3) A stronger need to understand water risk as a mix of exposure and response
Risk does not manifest from exposure alone and if mining companies and investors were to only consider water risk exposure, they would be unable to harness the considerable opportunities that lie in high water risk regions. What is critical is to ensure that when operating in such challenging basins, the response needs to match the risk exposure. In short, the greater the risk exposure, the stronger the contextual water risk response ought to be.
The challenge facing companies is that traditionally, developing contextually-sensitive response strategies can be time consuming. Similarly, for investors, water risk exposure-response assessments are largely unavailable from Environmental, Social and Governance data providers.
However, this will no longer be the case.
On 18th February, WWF will launch the Water Risk Filter’s new Respond section. Unique amongst water risk tools, this section will offer users a tailored set of contextual response actions to guide corporate action on water challenges. With over 150 different actions, the new section will enable mining companies to develop not only mine-specific response plans, but also inform bespoke, corporate-level support actions across a portfolio of mining operations.
The upcoming Respond section dynamically links the water risk assessment results for any given site (or a portfolio of sites) to provide a customized set of mitigation response actions (split into 10 broad categories). Our initial analysis through the new Respond section, which took the top 20 mining companies (by market capitalization), suggests that the following response areas are those that investors should explore with large mining companies:
• Operations, performance measurement & management
• Policies, standards and plans
• Water awareness and internal capacity
The new Respond section provide companies — and investors — with the ability to understand not only the risks but the responses that should be undertaken given the risks, and better equip analysts to ask the right questions. For mining companies, by offering a tailored set of response actions, this new section will help companies develop their water stewardship plan for a site, or a whole company, at the click of a button.
We believe this is a fundamental shift in the water risk landscape. By moving beyond risk assessment, the upgraded Water Risk Filter 5.0 opens many new doors — from guiding mining companies on how to respond to the pressing water-related risks highlighted by the World Economic Forum, to enabling investment analysts to better understand risks and identify opportunities.
And it does not stop here. We have also developed new layers in behind the tool to support the Task Force for Climate-related Financial Disclosure (TCFD)’s scenario recommendations. This will soon be available to support scenario evaluation of water-related risk & responses for mining companies. So stay tuned for the new Respond section coming live this month and the development of our water-climate scenarios into the upgraded Water Risk Filter 5.0 as we go from risk assessment to response.