NBIM is exposed to water-related risks through its investments in about 7,500 companies, many of which rely on water as an input or output factor in their operations and supply chains. Water Management has been a strategic focus for NBIM since 2009. Within a context of increasing water scarcity and adverse water-related events, the Fund’s long-term return may be impacted through company specific risks or increased systematic risks driven by these externalities. Mapping and understanding such risks can be a challenge but is fundamental in supporting investment decisions.
The Government Pension Fund Global is broadly invested in several water-intensive sectors including Basic Resources, Chemicals, Food & Beverage, Health Care, Oil & Gas, Personal & Household Goods, Technology and Utilities. The World Bank highlights wide global disparities in water resources, with increasing needs being placed on the supply of concentrated freshwater in emerging economies. China and India alone account for over one third of total global water demand. Over-taxed aquifers in developing economies have elevated concerns, and inadequate resources to meet growing needs from population and industries in developing economies may impair future economic growth.
Transparent water reporting will help investors understand the specific risk exposures of different companies, as well as sectorial or regional challenges. Granularity of information reported at company and site levels is essential to understand the operational business resilience of companies to local water challenges and relevance of risk mitigation strategies. This is a necessary step towards assisting investors in managing and mitigating risks across their investment portfolio and a valuable process to support sustainable water management. NBIM encourages CDP’s water program to develop deeper and richer reporting of water-related risks.
CDP’s Global Water Report provides investors with critical information on how companies identify, manage and mitigate risks and opportunities related to water. We welcome the release of CDP’s 2013 Global Water Report and corresponding response data as it facilitates an understanding of water related risks. The reports indicate that water-related events may have increased in magnitude, emphasizing the need for companies and investors to better understand the events and likelihood of future water risks. More than half of the respondents have already experienced detrimental water-related business impacts in the past five years, with respondents in the industrial sector reporting a 52% increase in impacts. In addition, the 2013 report highlights that approximately three quarters of respondents have identified water as a substantial business risk with more than 60% of those risks expected to materialize in the next five years. As companies move towards an increasingly resource-constrained world, water-related risks may affect the global competitive landscape and may need to be managed.
As a lead sponsor of CDP’s water program since 2009, NBIM looks forward to continued joint efforts with CDP to promote transparent water reporting and sustainable water management by companies. The continued development of CDP’s water program and risk related response data, together with the introduction and testing of scoring in 2014, is an important milestone in helping investors secure valuable information in their investment decision process. Beyond 2014 we look to further developments to increase depth in the figures to better measure performance and risk at corporate and company site levels.
This commentary by Jan Thomsen, Chief Risk Officer at Norges Bank Investment Management (NBIM), was published in the CDP’s Global Water Report for 2013. NBIM has water as one of six focus areas for its ownership activities.