Water management – a new focus area

NBIM is broadly invested in several sectors with high waterconsuming and has identified seven sectors as particularly exposed to water related risk: food, agriculture, pulp and paper, pharmaceuticals, mining, manufacturing and power, and water supply. These sectors have water as an important input or output factor, and are therefore particularly relevant when it comes to water management. In terms of NBIM’s portfolio, water is an important input and output factor for more than 1 100 companies. The fund’s holdings in these companies have a combined market value of NOK 265 billion.

Water supply and demand are unevenly distributed between world regions. Economic growth, industrialisation and population growth are driving rising demand for water, while
factors such as climate change, pollution and regulation are increasingly affecting the supply of water. Agriculture is the world’s largest fresh water consumer. Manufacturing
currently consumes around 22 per cent of available fresh water worldwide, according to UNESCO, and this figure is expected to increase, especially in the developing world.

Even today, companies with poor water management face significant operational risk associated with supply interruptions and higher treatment costs. There is also risk associated with regulation and with opposition from local communities and activist groups. In addition, poor water management can lead to liability for damages or the loss of licences and permits. In the future, securing access to the quantity and quality of water needed for production and complying with requirements for wastewater emissions may become important for more and more companies and their results.

Many companies in risk sectors and regions do not have a proper water policy with risk assessments and performance reporting. For investors like NBIM, which is broadly invested in sectors with high water related risk, companies’ water risk management may be critical. Shortcomings in companies’ water management reporting, makes it difficult to assess the degree of risk exposure resulting from their own operations or their supply chains.

NBIM believes that investors should have access to sufficient information to enable them to evaluate the potential impact of water shortages on a company’s operations or earnings, and the likelihood of occurrence.

During the third quarter, NBIM will publish a document formulating the expectations we have of companies’ management of water as a resource and the associated risk. These expectations are aimed at companies with operations or supply chains in sectors and regions that are particularly exposed to risk associated with water, and are based on international standards and best practice for water management.