Challenges of water scarcity : a business case for financial institutions

The challenges associated with water scarcity are becoming an emerging risk of strategic importance to businesses and their financial backers around the world. Financial institutions face a variety of potential risks and as a result have suffered losses due to unexpected water related problems affecting their customers or investments The three major type of financial risks are : 1) financial losses due to disruption of operations, 2) increased financial investments due to required water treatment, either for water use, or wastewater treatment and 3) loss of an anticipated revenue base due to cancelled or delayed growth and expansion in a region due to quality, quantity, or stakeholder considerations. The risk drivers are often institutional and political. Some identified factors are : 1) drought and drought cycles 2) water quality concerns, 3) institutional and managerial capacity for effective water governance, 4) political and regulatory conditions, 5) cross boundary water and risk of conflict, and 6) local community and stakeholder concerns. In this report, UNEP FI and SIWI provide financial institutions with a framework to acknowledge risks related to water scarcity and social conflicts that may arise under this scenario. Case studies from Latin America and Africa are provided and elements for a proactive approach to water scarcity by financial institutions identified. Key opportunities to manage the risks related to water scarcity and to contribute to global efforts in the mitigation of the negative impacts to society, their own business interest, and the promotion of water sustainability are outlined.