MAKING THE HEADLINES THIS MONTH

NOT NAMING NAMES…
A ground-breaking new study is the first to assign responsibility for ecological damage caused by 160 countries in the last 50 years. It finds high-income nations responsible for 74% of global excess material use, driven primarily by the USA (27%) and the EU’s 28 high-income countries (25%). China is responsible for 15%. The remainder of the Global South (i.e., low-income and middle-income countries of Latin America and the Caribbean, Africa, the Middle East, and Asia) is responsible for only 8%.

DISCLOSE YOUR NATURE POSITIVE PLANS
The European Financial Reporting Advisory Group (EFRAG) released its initial draft of proposed new rules and requirements for companies to report on sustainability-related impacts, opportunities and risks. It includes a proposal that companies would be required to disclose their plan to be nature positive by 2030. Under the new rules, an estimated 49,000 companies would need to report. The draft is open for public comment until 8 August 2022.

HIGH AND DRY: WATER ISSUES STRANDING ASSETS
New research from CDP  has found that global companies in key industries are already losing billions as a result of the global water crisis. The research finds that US$15.5 billion has already been stranded, or is at risk. It highlights the UN’s prediction of a 40% global shortfall in water supply if current consumption patterns don’t change.

POLLINATION PERSPECTIVES

By Emily Briggs, Executive Director

A slew of recent research has shown us the scale of the damage human behaviour is having on global freshwater systems – relevant of course because freshwater systems keep us alive, make all economic activity possible and hold geopolitical tensions about access to water at bay. The financial risk for companies is also laid bare in new figures, as we explain below.

There is a bright spot though: unlike the early days of trying to measure and mitigate carbon emissions, water use is something companies often already monitor. Many companiesThey will already have a lot of the underpinning data they’re likely to have to present to investors or regulators in future. What needs to change is how organisations use the data they have, to fully understand their impact and dependencies on water. Emerging guidance, such as the Taskforce on Nature-related Financial Disclosures (TNFD), provides a blueprint for how organisations can start to manage and assess nature data including water, to understand and address such risks.

There’s good reason to believe corporates are already starting down this route. In a recent conversation I had with a client in Australia, they acknowledged that their biggest water risk was their own usage. This realisation comes not a moment too soon, as several new reports show.

Time for a downgrade

Researchers from the University of Cambridge Institute for Sustainability Leadership (CISL) and HSBC assessed the potential impact of a three-month period of drought on the credit risk of heavy industrial companies in an East Asian country with areas of very high water stress. The results were dramatic: there was a “significant deterioration” of the average portfolio credit risk rating, and a third of the companies were demoted from investment grade to speculative.

The research found that the financial threat posed by a lack of water is such that water-related risks should be included in the risk frameworks used by financial institutions. At Pollination we support this view, and believe that investors will move quickly in this area. Companies will be well served by starting work now to understand their nature-related risks, including water insecurity.

Economic growth dries up

Water risks are resulting in stranded assets for oil and gas, mining, and electricity generation companies, research for the Swiss Federal Office for the Environment by Planet Tracker and CDP shows. Stranded assets typically refer to fossil fuel resources that have become too expensive to extract during a dip in prices, but in this case, the risk is that companies simply won’t be able to access the supply of water they need to extract them. In areas of high water stress, they may also lose the acceptance of the local community to drain scarce resources to drill or mine for their own financial gain.

Investors and the private sector have a massive role to play in preventing this by driving transparency, the authors of CPD’s report make clear: “Disclosure and increased water transparency across the financial sector will help to avoid the worst consequences of the water crisis and may contribute to actively stemming it.”

Water threats in detail

Finally, the Stockholm Resilience Centre recently published a planetary boundary framework assessment, finding that freshwater had exceeded safe limits. What does this mean? In the simplest terms, these frameworks assess limits of what the earth’s systems can handle. Until recently, freshwater had been within the ‘sustainable’ boundary, but has now breached the limit of what the earth can sustain. As a result, researchers have issued a stark warning: “these changes are potentially pushing the Amazon closer to a tipping point where large parts could switch from rainforest to savannah-like states.”  

Without being alarmist: water underpins all life on earth. Without enough of it, we face a whole range of critical issues, from biodiversity loss to social unrest. The time for action is now. The cause for hope is that companies and governments are aware of water’s importance and already gather the kind of data they need to start changing corporate behaviour.

FOOD FOR THOUGHT

TURNING CITIES INTO SPONGES 

Engineers, architects, urban planners and officials around the world are seeking ways to retrofit or reconstruct cities to better deal with water — basically, to act more like sponges. While water management has always been an essential service in cities, climate change – combined with urban expansion into wetlands and floodplains – is making flooding and drought worse at the same time.

So, around the world officials are moving away from the traditional, hard infrastructure of flood barriers, concrete walls, culverts and sewer systems and toward solutions that mimic nature. They are building green roofs and parks; restoring wetlands, swales and rivers; digging storage ponds; and more. Such projects — known by various names including sponge cities, porous cities or blue-green infrastructure — also improve city dwellers’ quality of life.

An excellent report by the NY Times looks at stand-out initiatives in Wuhan, China; Malmo, Sweden and Philadelphia.

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