Constantina Bichta, Associate Director of ESG Research, offers the investor perspective on mitigating water risks through active engagement with companies and nature-based solutions.
Today is World Water Day, a day for us to reflect on the importance of water and the risk its scarcity presents to society. We already feel the impacts of climate change on water, with irregular rainfall, droughts and frequent floods. This winter, major coastal storms pushed ocean water into the streets of coastal cities in the Northeast, bringing the threat of water risk right to our front door at Boston Common.
Last month, the National Oceanic and Atmospheric Administration released a major report highlighting the growing threat facing coastal communities in all parts of the United States.[1] As sea levels rise due to global warming, the kind of flooding currently experienced only in storms will happen during normal high tides, and it is known as “sunny day flooding.” Sunny day flooding, or high-tide flooding, is flooding which is increasingly happening with no storm or rain in sight. It is a direct response to years of local relative sea level rise.[2]
Holding overall global temperature increases to well below 2°C, ideally to 1.5°C, is the cornerstone of the Paris agreement—and a critical step toward mitigating climate risk and increasing water security for all. Even at 1°C warming, scientists agree that the impacts on the environment and humans are evident, as extreme weather conditions, droughts and floods can endanger human life and disrupt economic activity.[3] Missing the 2°C goal will affect water availability even more, and this makes it critical that all sectors see themselves as caretakers of this precious resource. Only 3% of the world’s water is freshwater!
Businesses as Water Stewards
At Boston Common, we believe that it is vital that companies use water responsibly, both for the health of society and for their own financial health. Water is central to many products, and without water, businesses will not be able to grow product offerings in the long run. Companies that fail to manage water efficiently or do not protect access for local communities endanger their license to operate. Limiting water pollution is another critical part of ensuring safe and secure freshwater supplies for the future, as a significant portion of the world’s freshwater resources is already contaminated with pollutants from farming, energy generation, and other industries.[4]
So important is water to people and the planet, that the UN Sustainable Development Goals (SDGs) make “access to clean water and sanitation” and “oceans conservation” key priorities.
Boston Common advocates for companies to adopt a comprehensive approach to water risk management by encouraging them to:
- Develop policies to manage the company’s operational water footprint
- Engage with their supply chains in order to assess their total exposure to water risks
- Evaluate the company’s and supply chain’s water footprint through water risk assessments
- Identity water risk priority areas (sites or basins), develop actions plans, and work with local communities and stakeholders to ensure local water management and equitable access to water.
For the past three years, Boston Common has worked with the Principles for Responsible Investment (PRI) Water Risks in Agricultural Supply Chains Working Group to effect change within companies’ direct operations and supply chains that are dependent on agriculture, the world’s largest user of water.
Impact through Sustained Dialogue
As active investors, our tenacious dialogue with portfolio companies creates impact by encouraging them to further improve their policies and processes to align with industry best practices in water risk management. Our long-term engagement with VF Corporation (VF Corp.) led the company to adopt a global water strategy and assess water risks in its supply chain. In 2015, we elevated the dialogue with VF Corp. through the broader coalition of PRI investor signatories. PRI recently included our engagement with VF Corp as a case study in its water report, “Growing Water Risk Resilience, an Investor Guide on Agricultural Supply Chains.”
VF Corp. responded for the first time to CDP Water in 2015, reaching a milestone by publicly reporting on its approach to assessing exposure to water risks throughout its supply chain. In 2015, VF Corp. also conducted a company-wide water risk assessment with the World Resource Institute (WRI) and Deloitte to identify water-related risks in the supply chain. VF Corp. has now partnered with the World Wildlife Fund (WWF) to develop a water strategy that addresses opportunities in VF-owned manufacturing and supply chain operations for improving water use and impact.[5]
Nature is Part of the Answer
This year’s theme for World Water Day is “Nature for Water,” which explores nature-based solutions, such as “planting trees to replenish forests, reconnecting rivers to floodplains, and restoring wetlands, as a sustainable and cost-effective way to help rebalance the water cycle, mitigate the effects of climate change and improve human health and livelihoods.”[6]
At Boston Common we are committed to “walking our talk” by incorporating sustainable practices into our own corporate culture, including nature-based solutions. Since 2005, we have offset our firm-level carbon emissions by supporting sustainable reforestation and have partnered with Camino Verde since 2015 to achieve carbon neutrality.
Next Steps
As active investors, Boston Common will continue to challenge our portfolio companies in designing and adopting appropriate water risk management strategies and programs in response to climate change.
We continue to seek to invest in companies that provide a myriad of solutions that prepare us to better tackle water availability—ranging from improved metering and irrigation technologies to wastewater and water recycling treatments.
Foremost, through our integrated ESG investment research and active ownership, we endeavor to align our work on water with the UN Sustainable Development goals on clean water (SDG6) and oceans (SDG14), creating meaningful impact for investors and society:
- SDG6: “Ensure availability and sustainable management for water and sanitation for all’
- SDG14: “Conserve and sustainably use the oceans, seas and marine resources for sustainable development.”
Boston Common will also sign the newly published Sustainable Blue Economy Finance Principles, in support of the SDG-ocean goal, a direct link to oceans and investment opportunities created through the preservation of marine resources and ecosystems.[7]
This World Water Day, we rededicate ourselves to the premise that water is a human right, even as climate change poses new threats.
The information in this article should not be considered a recommendation to buy or sell any security.
[1] Patterns and Projections of High Tide Flooding Along the US Coastline using a Common Impact Threshold, Silver Spring, Maryland February 2018 https://tidesandcurrents.noaa.gov/publications/techrpt86_PaP_of_HTFlooding.pdf
[2] Today’s storm surge is tomorrow’s high tide, new report predicts, Brandon Miller, March 7, 2018 https://www.cnn.com/2018/03/07/us/noaa-sea-level-rise-report/index.html
[3] OECD Environmental Outlook to 2050 Climate Change Chapter, Nov 2011, https://www.oecd.org/env/cc/49082173.pdf
[4] Cotton and climate: Supply chain risks and opportunities from water stress, HSBC Global Research, July 2016
[5] Growing Water Risk Resilience: An Investor Guide on Agricultural Supply Chains, PRI 2018.
[6] http://worldwaterday.org/app/uploads/2018/02/fact_sheet_WWD2017_EN_2.pdf
[7] Introducing the Sustainable Blue Economy Finance Principles, WWF, March 2018. https://www.wwf.org.uk/sites/default/files/2018-03/Introducing%20the%20Sustainable%20Blue%20Economy%20Finance%20Principles_2018%20Brochure.pdf
