Water-related issues can materially impact businesses; the problem is complex and solutions local. A systematic approach is required by exposed companies, and we encourage best practice.
A lack of effective water management can impact the financial returns of companies in exposed sectors, particularly as water resources become increasingly stressed, due to factors such as increased demand and climate change. For the seventh consecutive year, the World Economic Forum’s Global Risks Report has ranked water crises within the top five risks in terms of impact. Assessing and managing water is also crucial to achieving the SDGs, particularly SDG6 – Clean Water and Sanitation.
Having flagged this as an issue last year, we have since worked to understand our exposure to water risks, and how the companies we invest in are managing these risks. The BMO Responsible Global Equity Strategy has a low allocation to several water-intensive sectors such as mining, energy and food and beverage due to our investment choices and screening criteria, and a relatively high weight in sectors such as financials and technology, which leads to a natural bias against water-related risk.
To analyse our remaining risk exposure, we reviewed disclosures made by our companies to the CDP water security program. 40% of our companies were asked to respond, due to being in more water-intensive sectors. Over one-third of those who responded achieved a Leadership rating, meaning that they are carrying out best practices in water stewardship.