INSIGHT by CDP
Data released today by the global non-profit, CDP, provides fresh insight into how companies and investors are responding to the global water crisis.
The data, being released during the global UN climate summit, COP28, highlights the central role water security plays in supporting, or holding back, the transition to zero-carbon energy technologies.
Pressures on water availability need to be carefully managed if the world wants to reach zero emissions and adapt to the impacts of extreme weather events. The data shows that out of 396 fossil fuel companies invited to disclose water data, only 82 responded. Of this group, 16 reported potential risks to production capacity because of water issues and one plant could be forced to close. Similarly, 21 companies in the power generation sector, which included both renewable energy and gas-fired plants, reported potential production problems and five could shut down.
56 out of 118 power companies provided data to CDP, or 47%, highlighting how the sector needs to wake up to water issues. Despite this, 92% of respondents claimed to undertake a water-related risk assessment on their projects. For the fossil fuel industry this was 80%, compared to 62% across all reporting industries.
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Mining is another industry critical to the energy transition as minerals are needed in everything from electric vehicles to wind turbines. The industry is notorious for its intensive water consumption and the latest data provides a glimpse into these water impacts. 42 companies responded to CDP’s request for data – every single one operates in an industry CDP has rated as having a ‘critical’ impact on water supplies. A further 20 reported potential reduced production and one could close.
“In the push to wean ourselves off fossil fuels we are failing to see the dangers caused by a lack of available freshwater.
“Energy and water are deeply dependent on each other. Water supplies are becoming ever more fragile, and we urgently need to value what’s left. This means investors and companies financing energy projects should take immediate steps to understand and manage their water risks and impacts. This is especially important for the fast-growing clean energy market. If we get this right, we not only protect water supplies but the many new jobs created by the switch to renewable energy. “Member states at COP28 need to recognize how water is essential to solving the climate crisis. This fact can’t be lost during the negotiations.”
-Patricia Calderon, associate director, water, CDP
This year’s disclosure cycle found that a record 4,815 companies responded to CDP’s request for data on water security – a 98% increase over the past five years. Among those to respond were 350 of the world’s largest banks, asset managers, asset owners and insurers provided data to CDP, an increase of 28% on the previous year. The majority of those responding came from Europe, followed by Asia-Pacific and North America. These financial firms represented an estimated market capitalization of over US$4.3 trillion, highlighting the prominence of water issues within the world’s leading financiers.
Previous CDP research has highlighted how financial institutions are deeply exposed to water risks. Leading global investors pumped US$2.5 trillion into water intensive companies over the last decade through a combination of bond, loan, and equity financing.
These investments are already posing a problem as more energy projects face water shortages. In 2022, CDP found that an estimated US$13.5 billion had already been stranded across four key infrastructure projects analyzed by CDP. An additional US$2 billion was at risk across the oil & gas, electric utilities, coal, and metals & mining sectors.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
