Plotting a pathway from risk to resilience: How the new Water Risk Filter Scenarios can help businesses and investors
Rafael Camargo, WWF Water Risk Filter Technical Lead, and Ariane Laporte-Bisquit, WWF Water Risk Filter Project Lead
Climate change is threatening financial stability and business viability, as highlighted in the recent US federal report. Companies and investors can no longer afford to ignore the impacts of climate change, which will be felt — first and foremost — through water.
To help the private sector tackle the complex and interlinked challenges posed by climate and water risks, the WWF Water Risk Filter now includes new forward-looking scenarios, aligned with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations. The new Water Risk Filter scenarios will enable companies and investors to evaluate future water risks and inform resilience planning in the face of climate change.
As the application of climate and water scenarios in the context of business is a very new field, we wrote this blog to explain the Why? What? How? regarding the use of the Water Risk Filter scenarios.
Figure 1. The new functionality “Scenarios” (under the section EXPLORE) in the Water Risk Filter online tool.
Why use scenarios in the first place?
Scenario analysis is a method to manage uncertainties and is a useful approach for forward-looking assessment of climate and water related risks. Scenarios have been used by the scientific community for decades, and are now gaining popularity in the business context. In 2017, the TCFD recommended that companies and other organizations apply scenario analysis to assess future risks and opportunities, with the objective to help evaluate and plan for long-term resilience.
The TCFD 2019 status report found signs of progress. However, given the urgent and unprecedented changes needed to meet the goals of the Paris Agreement, there are growing concerns that corporate disclosure and action needs to be drastically scaled up — and fast.
As climate change will exacerbate water risks but can also amplify opportunities, it is critical for TCFD-aligned scenario analysis to integrate water in a comprehensive manner. Given the critical need but lack of available comprehensive scenario analysis tools, we took the decision to develop scenarios of water risk within WWF’s Water Risk Filter tool.
What are the Water Risk Filter scenarios?
For the past two years, we collaborated with multiple research groups with expertise in different aspects of water risk such as IIASA Water Program, Water Scarcity Atlas, the University of Tokyo, IFPRI (CGIAR), NIES Japan, and the European Commission’s JRC. This enabled us to develop the Water Risk Filter scenarios, which comprehensively cover all types of water risks. The 14 risk layers range from TCFD-focused acute physical risks (e.g. flooding) and chronic physical risks (e.g. scarcity, water quality, and ecosystem services status) to the less commonly explored regulatory and reputational water risks, but which can cause significant potential impacts if overlooked.
In line with the TCFD recommendations, the Water Risk Filter scenarios are based on the combination of the most relevant climate scenarios (IPCC Representative Concentration Pathways — RCP) and socio-economic scenarios (IIASA Shared Socioeconomic Pathways — SSP). Accordingly, the three scenario pathways — Pessimistic, Current trend and Optimistic — for 2030 and 2050 are illustrated and described in the figure below.
Figure 2. The Water Risk Filter overall water risk maps for 2030 and 2050 and associated scenario narratives.
How can the Water Risk Filter scenarios be used?
Companies and investors can use the Water Risk Filter scenarios to perform TCFD-aligned scenario analysis in order to:
- assess exposure to future water risks;
- evaluate how resilient their response plans and strategies are to different plausible scenarios, which in turn can help inform strategic decisions on how to best prepare and adapt for the unknown future; and
- report reliable, comparable and relevant information on future water risks, opportunities and resilience in the face of climate change, as recommended by TCFD.
In addition, we aim to leverage the new Water Risk Filter scenario data to gain new insights on a range of climate-water issues in different sectors so as to strengthen WWF’s engagement on adaptation and resilience. For example, we have conducted an analysis showing that by 2050, 37% of existing and 30% of future hydropower dams are likely to face higher water scarcity risk than seeing today. Furthermore, we are exploring new ways of applying the Water Risk Filter scenarios data to provide geospatial intelligence that will help inform WWF’s mission towards a more water-secure and climate resilient future.
Figure 3. Using the WWF Water Risk Filter scenarios to assess change in water scarcity risk to hydropower dams (2050 Pessimistic scenario).
In conclusion, the new Water Risk Filter scenarios will help companies and investors better assess, respond and report on future water risks and opportunities to drive corporate action on climate and water resilience. We have already tested and performed portfolio risk assessments using the Water Risk Filter scenarios with corporate partners such as Carlsberg, and we are currently working with the German food retailer EDEKA to publish a report in November on how key agricultural commodities may be exposed to water risks in the future. We are keen to offer our expertise for tailored scenario analyses to companies and investors wanting to work more closely with us.
Last but not least, mitigating climate and water risks to achieve long-term resilience will require reducing emissions and scaling up basin-level efforts, with greater attention in particular on Nature-based Solutions. Stay tuned for upcoming WWF reports later this year to help businesses build climate resilience and embed it into their water stewardship strategies for a water-secure future for people and nature under a changing climate.