Water Shortage Puts Companies, Investments at Risk

Both US assets and entire companies — including UNS Energy, Black Hills Corporation, MGE Energy and Sempra Energy — are at risk due to choices soon to be made over whether to use water for crop production or electricity generation, according to a report from MSCI’s Environmental, Sustainability & Governance unit.

MSCI says it’s the first report detailing for investors which companies are exposed to the most risk.

Key findings of Water Issue Report: Corn or Current? The Agro-Industrial Water Conflict include:

• This is a nationwide issue. More than one-third of the US experienced severe to exceptional drought in the first week of September. This is unprecedented.
• This drought is already affecting local communities that have water-intensive industries operating in their region and the competition is heading toward unforeseen costs and direct conflicts with agriculture users.
• Regional electric utilities, oil and gas companies, and metals manufacturers stand to lose the most as water stress levels worsen. Of these, oil and gas companies comprise the top 10 in exposure to water stress. And regional electric power generators face the most pronounced risk.
• California is at the most risk. Eleven of the 12 counties with high water stress are in California. The total water risk for the state: more than $1 billion (especially almonds, grapes, and pistachios).

Most companies believe water challenges will significantly worsen in the next five years, according to a May survey of major US corporations by the Pacific Institute and VOX Global. However, the majority of companies surveyed do not appear to be planning to scale up their water risk management practices — about 70 percent of responding companies said their current level of investment in water management is sufficient.