Report Says Financial Institutions Need to Weigh Business Water Risks

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STOCKHOLM, -- A new report from the United Nations Environment Programme and the Stockholm International Water Institute makes the business case for financial institutions considering the problem of water scarcity when financing industrial projects.

The preliminary findings of report -- titled “Risks of Water Scarcity: A Business Risk for Financial Institutions,” were discussed in Stockholm during the recently held 2004 World Water Week.

The report notes that the potential risks associated with water scarcity “have become an emerging risk of strategic importance to businesses and their financial backers around the world. This is becoming even more important with rapid globalization within the business supply chain. Therefore, a business case for strategically addressing water challenges is getting stronger.”

The report acknowledges that “While each organization must relate to water in its own capacity, the business case for the financial sector will come from acknowledging the potential risks associated with water scarcity and its potential effects on how they do business, thus encouraging them to seek innovative solutions for mitigating these risks.”

Financial institutions, which assume the risk of companies and projects, can exercise considerable influence and control over investment and management decisions through loan management, says the report. This leverage, “could be brought into play for the benefit of both their own business and the environment.”

The report’s examples indicate that financial institutions will need to address potential risks that arise in the entire value chain of water intensive sectors, which may be affected by future water shortages, as well as risks related to transport on waterways and water related conflict.

Among the report’s conclusions:

• Water scarcity can become, if not already, a considerable source of risks to projects and investments. The corporate sector need to assess this fact and work together with society to make progress.
• Assessment of water scarcity risk must be included in project planning, business projections and business opportunities due diligence.
• A collaborative approach with relevant stakeholders can build credibility, trust and much needed partnerships to anticipate and mitigate negative risks.
• Financial institutions need to understand how water scarcity will affect their core businesses and that of its business partners.
• Water supply problems can open a window to improve operational performance and efficiency. This can give a company a competitive advantage on its peers and this is an investment opportunity for financial institutions to propose sustainable improvements which can benefit business and water sustainability.

  The full report may be downloaded by clicking Here.

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