GLOBAL - Investors should engage with companies on their use of water to make it a sustainability issue, according to environmental, social and governance (ESG) research provider EIRIS.
Speaking at the company's 'A Drought in Your Portfolio' event, Randeep Sanghera, research analyst at EIRIS argued that water, as a commodity, is essential to companies' operations. Therefore, "water scarcity, stress and risk" will be factors impacting a company's bottom line.
"Investors should demand an increased level of reporting on water. They should also be encouraging companies to become aware of the risks and opportunities and be encouraging companies to make the management of water a core part of their environmental strategy," he added.
The Dutch asset manager Robeco is already integrating water risk in its investments, mainly through engagement with companies, its senior engagement specialist Lara Yacob told attendees.
"We engage on water primarily to mitigate the risk/return profile of the company and to seek opportunities around growth," she said.
The asset manager initially identifies the companies for which water risk could be an issue in its portfolio before identifying specific issues through research. It then proposes the topics of engagement by using sector leaders and laggards as an example.
Opportunities present themselves to investors also through funds that invest in water infrastructure and technology. However, the few that exist are heavily oversubscribed.
"The risk with the private sector is that it may become too focused on profit and neglect, for example, the infrastructure," said Sanghera.
There are problems holding back progress. According to Kirsty Jenkinson, director markets and enterprise programme at the World Resources Institute, current water prices are too low to signal scarcity and encourage investment and conservation, while water resources are poorly governed. Better information is required to act strategically on water risk.