Focus area: water management
Increasingly scarce water supplies are a growing risk for many of the companies the fund invests in. Managing this risk is important for the companies’ financial results and the fund’s investments.
We have identified seven industries that are particularly exposed to the risk of scarce water supplies. These are food, agriculture, pulp and paper, pharmaceuticals, mining, water supply and electricity production. We expect companies in these industries to manage risk from scarce water supplies. Our expectations are outlined in NBIM Investor Expectations: Water Management. The document is used as a basis for dialogue with companies we invest in.
We expect companies to have:
A clear water-management strategy
Investors should be able to assess how water scarcity may impact a company’s operations and financial results. Companies should evaluate the extent to which water is an input and output factor in production processes. (analysing their exposure to and dependency on water in their operations and supply chains.)
Sustainable water management
Companies in industries that are particularly exposed to water-related risk and regions that have the best systems and technologies to deal with water challenges are better positioned to mitigate water-related risk, identify new market opportunities and create shareholder value.
A company’s water use may impact its surrounding community. Sustainable water management should take measures to mitigate adverse effects on local communities.
A governance structure
Companies must have a corporate governance structure that facilitates realistic strategies and responses to water management. The following elements should be considered: board-level involvement, board committee structures, management responsibilities, risk management and internal control processes, reporting lines, timelines and clear targets.