there are some positive signs that organizations, such as the United Nations, are better defining and evaluating impact companies in the water and sanitation sectors. To move further forward, global cooperation among distinct stakeholders is required to appreciate that water issues in one area impact economies in other areas, especially where they contribute to disruptive conflict, and companies can’t ignore local problems when they impact global supply chains. Public-private partnerships are required to address these issues, but they need access to precise data and information; otherwise, the wider economy will suffer from resource reduction and a company’s results will be vulnerable to stakeholder criticism caused by a negative reputation.
Water is in focus in Europe, where the vast majority of investors see it as a concern, but perhaps this is driven by the establishment of the European Union (EU) Water Framework Directive. In addition, the World Economic Forum (WEF) has cited water as a driver of global risk, for everything from conflict to health crises and mass migration. And note that water security is one of the United Nations’ Sustainable Development Goals (see Chapter 1). Therefore, water is considered a multi-impact investment because it affects the microclimate, food supply, industrial chain, health, productivity, and the environment overall. This confirms that water is fundamentally linked to other impact themes and has wide applicability to business and the investment community. Water management, technology, distribution, and conservation are some of the issues that organizations face, following years of poor water and waste management practices.
There is increasing pressure for water-themed investments given the huge number of people who lack access to securely managed sanitation and drinking water services. Meanwhile, water-related perils are responsible for 90 percent of natural disasters. However, most firms still lack a water-efficiency policy, and even fewer of them have set targets for water efficiency. The only bright spot is that the momentum appears to be building and institutional investors have noticed, as water now ranks among their top three ESG concerns. Stock index providers are designing more sustainable indexes that explicitly cover water and sanitation companies, while analysis of some of the major global indexes by Ceres (www.ceres.org/) found that 50 percent of component companies face medium to high water risks.
There is no Planet B: Air and water pollution
Pollutant emissions are a major risk for both air and water supplies. Healthy ecosystems rely on a complex web of elements that interact, directly or indirectly, with each other. Damage to any of these elements can create a chain reaction, endangering all kinds of environments due to the air and water pollution created. An unintended benefit of the COVID-19 pandemic is the slowdown in global economic activity, which has led to reduced air and water pollution. However, when the U.S. Environmental Protection Agency (EPA) suspended enforcement of environmental laws during the outbreak, stating that polluting the air or water will be allowable as long as the violations are “caused by” the pandemic, there may be unintended drawbacks as well.
Human behavior has been stressed as the major cause of air pollution, especially in cities. Beijing’s smog cloud has been “clear” for many years, but there have been important developments in air- and water-quality metrics more recently due to social and government attention. Nonetheless, air pollution has caused damage to crops, forests, and waterways. Moreover, the effect of air pollution leads to the formation of acid rain, which harms trees, soils, rivers, and wildlife.
Similarly, human behavior is also to blame for the major cause of water pollution: microplastics. Primary microplastics are tiny particles found in cosmetics or as microfibers shed from clothing and other textiles, such as fishing nets. These microplastics have been specifically produced for commercial use, while secondary microplastics result from the breakdown of larger plastic items, such as water bottles. These microplastics find their way into our rivers, from where they become a major source of plastic waste flowing into the oceans. Estimates suggest that over 1,000 rivers are accountable for 80 percent of global annual emissions, which range between 0.8 and 2.7 million metric tons per year, with small urban rivers being among the most polluted.
These are examples where, to reduce the problems of air and water pollution, companies should be more aware of their impact in these environmental areas. Transition risks can include new regulatory restrictions that increase costs for the most polluting factories, or the withdrawal of licenses to operate due to pollution or poor environmental standards.
www.cdp.net/en/companies/companies-scores.
Live and let live: Biodiversity
The effects of human action on the natural world are deeply harmful, and as our population increases and the search for economic growth continues, the threat will only increase. Damage to ecosystems across the world, and the resulting loss of biodiversity, has collected fewer headlines than other sustainability challenges, even though the biodiversity crisis is a direct risk to humankind.
Part of the problem is that it’s difficult to quantify due to the heterogeneity of ecosystems, making the correct response difficult to identify. Clearly, biodiversity loss is directly related to the climate emergency, and more companies, governments, and the public are recognizing this. For example, the protection of the ecosystems found in natural forests is a key solution to mitigating global warming. Extinction rates are multiple times higher than the historic rate, and approximately 1 million species are at threat out of a total of 8 million plant and animal species on earth. However, companies have consistently struggled to evaluate how their activities affect biodiversity, partly due to the exceptional complexity of the living systems that their value chains interact with.
Investments in biodiversity contribute directly to the full range of UN Sustainable Development Goals (SDGs). Conserving biodiversity and ecosystems preserves the ability of our planet to sustain our prosperity. Biodiversity finance combines conventional capital with financial incentives to fund sustainable biodiversity management. It can include private and public financial resources, and investments in commercial businesses that create positive biodiversity outcomes. However, most funding originates from public funds, including domestic public budgets, biodiversity-positive agricultural subsidies, and international transfers of public funds, and these activities haven’t been well communicated on a national scale. Moreover, without specific information on recipient-country expenditures and priorities, development partners have been unwilling to promise support to reach biodiversity management goals and objectives. Investors tend to lump the associated risks in with industries such as mining.
