Since the start of 2018, extreme weather events have grabbed the headlines worldwide, from the “Day Zero” drought in Cape Town to Japan’s worst flooding event in 36 years and the record-breaking heatwave drying up Europe’s water resources. For businesses, this is also bad news. Damaged infrastructure, stranded assets, water restrictions or supply chain disruptions are just a few examples of the types of business impacts caused by these severe water-related events — ultimately affecting companies’ bottom line.
Today, water risks are one of the major threats to business viability and investment returns across the globe as highlighted by the World Economic Forum’s annual Global Risks Report. Consequently, companies and investors increasingly want to take action to respond and reduce financial impacts from water risks. But where to start? What actions to invest in? How to evaluate the potential financial impacts involved?
Until now, water risk tools only focused on the assessment of water risks. But this is all about to change.
During World Water Week we will be giving exclusive previews of WWF’s Water Risk Filter 5.0. Boasting a wealth of new functions and a more user-friendly interface, this leading tool will enable companies and investors to explore, assess, value and respond to worsening water risks.
Explore, visualize and learn more about water risks and stewardship
The upgraded Water Risk Filter will host the largest database of water risk maps. With 32 basin risk indicators and more than 12 high resolution country data sets, the new tool offers an array of map risks layers and at different scales from global to local. Users can also explore over 120 country profiles containing detailed information on national water governance, policies and water resources.
WWF has a long history of working collaboratively with multiple stakeholders (i.e. communities, businesses and government) to improve water management and address shared water challenges in key river basins. From the Amazon to the Zambezi, the Explore module provides deeper insight into on-the ground collective action projects led by WWF as well as all the latest reports on water stewardship.
Assess water risk using best available data
Water risk assessments are generally based solely on a company’s geographic location (basin-related risks). But this only covers one part of the picture. A company’s risk exposure also depends on its performance and potential impacts on the basin (operational-related risks). Since its launch in 2012, the Water Risk Filter has been the only tool able to assess both basin and operational water risk.
Under version 5.0, we have upgraded the data structure and risk indicators to provide what we believe to be the best available scientific data and most comprehensive coverage of physical, regulatory and reputational risks. More specifically:
· Physical water risks now include climate change projection data for droughts, floods and water discharge developed in collaboration with the Potsdam Institute for Climate Impact Research;
· Combined multiple models on water scarcity, adding World Resources Institute’s Baseline Water Stress, and FAO’s water stress data to the existing water depletion data from Brauman et al.
· Regulatory water risk indicators have been reorganized to better align with SDG 6.5 on water governance (integrated water resource management); and
A new valuation module: from water risk to financial value
Whilst the price of water remains cheap, the financial impacts of droughts, floods, tighter water regulations or social conflicts over water resources can be significant for businesses. Investors and companies that do not account for the financial value of water risks are likely to make ill-informed investment decisions — affecting long-term business growth, communities, and the environment.
Various different approaches and tools for valuation have emerged over the past years but there is a degree of confusion about which approach or tool should be used for which purpose. To help users find the right one for their needs, we will be integrating a framework developed in 2015 by WWF, in conjunction with IFC, for understanding the links between water valuation, risk and stewardship.
Looking forward, WWF is developing its own valuation tool to explore how a portfolio’s water risk exposure translates into financial value impacts. Powered by CDP Water Security, and tied to a discounted cash flow analysis model, this new valuation tool will more rigorously analyze how water risks can affect the financial value of assets, enabling companies and investors to evaluate the potential financial impacts of water events on their operations, supply chains or investments.
A new response module: from water risk to contextual response
Perhaps the largest improvement in the Water Risk Filter 5.0, which also distinguishes it from other tools, is the ability to directly link from water risk assessment to response. Harnessing unique site water risk exposure and a site or company’s water stewardship response level, the new Respond section will offer a customized set of contextual response actions for each site within a portfolio, and for the portfolio as a whole.
All 130 actions have been linked to leading water stewardship frameworks (e.g., Alliance for Water Stewardship, CDP Water and Ceres Aqua Guage) and are hyperlinked to the CEO Water Mandate’s Water Stewardship Toolkit to help users better understand and align with the broader water stewardship ecosystem.
And it does not stop here. We will be enhancing the Respond module even further. Recognizing that different sectors face different types of risks, we plan to include sector specific actions and frameworks (e.g., Sustainable Apparel Coalition’s HIGG Index and actions for Tier 1 suppliers) to guide response. With tailored and contextual water stewardship response actions, the new Water Risk Filter will support companies to make the shift towards implementing contextual water targets as we move ultimately support Context-Based Water Targets.
Finally, whilst water risk remains the key driver to mobilize corporate action and is the main focus of this tool, WWF aims to drive a new narrative on water stewardship to capitalize on opportunities, collaboration, resilience and value creation. The Water Risk Filter will increasingly aim to support this narrative and provide new ways for companies and investors to analyze water opportunities and scale up basin finance for water and climate resilience.
We are excited to announce that the new site will be going live in the coming months with the Explore, Assess and Respond modules, followed later in the year with the Valuation module. Already a trusted global online tool for assessing corporate water risk, we aim to raise our level of ambition to help companies along their water stewardship journeys from assessment to response on water risks and opportunities.
For more information or to start assessing your water risks today, please contact Ariane