Liquid gold – why LAPFF is valuing water finance

Scarcity of water presents a significant risk to investors’ portfolios. LAPFF Chair Councillor Doug McMurdo explains why understanding the value of this natural resource is as important as managing carbon emissions and why the Forum has joined the Valuing Water Finance Task Force.

The UN World Water Day falls on 22 March this year to highlight the threat posed by the worsening global water crisis. As representatives of institutional investors with exposure to companies at risk from dwindling water supplies, the Forum will pay close attention to this event which we expect will provide useful insight into an increasingly important issue.

Demand for water is forecast to outstrip supply by 56% within the next decade, which presents serious environmental, social and governance (ESG) challenges for companies, investors and institutions.

Undervalued assets

Given the importance of water to every individual, business and organisation, it is critical that companies are able to value this resource effectively. As investors we often think about the significance of over valuing assets, but in the case of water, we are concerned that business may be increasingly guilty of underestimating water’s true worth.

To help manage and better understand these financial risks, LAPFF has joined the Ceres Valuing Water Finance Task Force []. The task force is supported by institutional investors across the globe and will strengthen the financial case for corporate water leadership.

Wider risks

Underestimating the importance of water and the impact of its scarcity has wider implications across our portfolios.

In 2020 we saw the environmental devastation caused by the Australian wildfires. These were certainly exacerbated by water depletion.

You will also be familiar with the Samarco and Brumadinho dam disasters in Brazil. LAPFF saw first-hand the damage caused to local communities through pollution and disruption to the water supply.

And in the UK we see year on year the misery caused by floods across the country, with the latest occurring within the last few weeks.

It is of the utmost importance that investors prioritise water security as an engagement issue, and LAPFF will continue to apply pressure to companies this year.

Just as we have seen through our collaborations with other investors and organisations on climate change and the transition to net zero carbon economy, we can affect positive change on water security.

Click here to read a Q&A between Doug McMurdo and Ceres Director of Water Kirsten James published in Responsible Investor