S&P: Water scarcity will be ‘Greatest Climate Threat’ to Assets by 2050

Water stress will be the greatest climate-related hazard to corporate physical assets by 2050, especially for the utilities and materials sectors, according to a new report by S&P Global Trucost.

The facilities run by utilities and the materials industry are particularly exposed to water shortages, exacerbated by shifting rainfall patterns and drought.
S&P’s report labelled water scarcity as “the greatest threat”, if left unmitigated, to all industries and argued that investors do not consider it enough in their transactions.

The Trucost data, drawn from about 15,000 publicly traded companies representing 95% of global market capitalisation, revealed that business infrastructure located in Asia will bear the brunt of the physical impact of global warming absent adaptation, though the projected hit to assets is only marginally lower in East Asia, the Middle East and North America.

According to the analysis, the S&P Asia Pacific index faces substantially greater hurricane exposure than the S&P Europe 350 index, while wildfires are a bigger risk factor for the S&P 500. Meanwhile sea level rise is a bigger risk for the S&P 500 than the European index. Water stress is a substantial risk factor for each of the indices.

In its comparison of industries, physical assets owned by the utilities, materials, energy, consumer staples and health care sectors were found to face the greatest danger from the consequences of global heating between now and 2050.

Water stress reflects the balance between renewable water supply and total water withdrawals (municipal, industrial and agricultural use) within a given area. Water stress can increase due to either a reduction in supply, increasing withdrawals, or a combination of both. For entities located in jurisdictions that draw significant resources, production costs could increase as focus shifts to groundwater supplies when surface water supplies decline.

Assetts owned by utilities face biggest physical risk from climate change

In a report published in September, the World Meteorological Organization said the number of weather-related disasters had risen five-fold from the 711 reported in the 1970-79 period to the 3,165 reported in the 2010-19 period. Global economic losses related to those weather events jumped from $175.4 billion in the earlier decade to $1.38 trillion in the 2010-19 decade.