UTFacultiesETNewsThe finance sector: help or hindrance in resolving global water crises?

The finance sector: help or hindrance in resolving global water crises?

Rick Hogeboom from the ET Faculty is at the General Assembly 2023 of the European Geosciences Union (EGU) which is held at the Austria Center Vienna (ACV) in Vienna, Austria and online, from 23–28 April 2023. The assembly is open to the scientists of all nations. During this event Hogeboom will talk about the finance sector. With the main question: help or hindrance in resolving global water crisis.

The financial sector is a hindrance to resolving the world’s water crises. Banks, pension funds and insurance companies do not show they sufficiently understand how their investment activities harm rivers, lakes, groundwater bodies and communities who depend on these sources for their livelihoods, nor do they take adequate action to prevent or reduce harmful practices. These are some of the sobering conclusions of our latest study that explores the role the world’s largest financial institutions play in addressing water related issues caused by business activities they invest in. Think of water scarcity, water pollution, and water insecurity, which are real and growing in many places around the world. Investors not being more active on water and water impacts is a tragic missed opportunity, as an improved water performance of the 118 trillion USD in assets under management by the 50 largest investors alone could be an enormous force for good towards a water secure and water sustainable global economy.

EGU Abstract: The finance sector: help or hindrance in resolving global water crises?

Anthropogenic pressures are generating an increasing number of water crises worldwide, including depletion of resources, water scarcity, pollution and water insecurity. One of the most prominent drivers behind these crisis is humanity’s growing water footprint, which measures human appropriation of freshwater resources in terms of volume and assimilation capacity to fulfill human needs and desires. The adverse impacts of our growing water footprint are manifold and spill over from the water and environmental domains to social, cultural, and economic domains.

The finance sector constitutes a powerful actor group that is often overlooked in water management discourses, despite the fact that through their allocation of trillions worth of monetary capital they enable economic activities that use and pollute water. In doing so, they steer and shape the state of Earth’s water resources of tomorrow. Finance may thus prove a crucial lever to help mitigate some of the water crises the world is currently facing and reach global water security by steering economic activity away from detrimental water practices. To date, however, it is unknown if the finance sector in (including banks, pensions funds and insurance companies), are a help or a hindrance in resolving global water crises.

We try to shed light on this issue by developing an assessment framework that is able to evaluate to what extent institutional investors include water aspects in their investment policies. The framework incorporates criteria on water accounting (e.g. do investors know the water footprint of their portfolio assets?); impact assessment (e.g. do investors assess water-related environmental, social and economic impacts of their investments?); impact management (e.g. do investors have mitigation plans in place?); and organizational governance structures and disclosure (e.g. do they report on water in their public facing communications?). We applied the framework to the 50 largest investors worldwide, managing 118 trillion USD in assets, by scrutinizing publicly disclosed policy documents, reporting and analyses on these topics. We scored and ranked the investors assessed to tell apart laggards from frontrunners.

Our study elucidates new interactions between two currently disconnected groups of stakeholders, i.e. the finance community on the one hand and the water science community on the other. Our study helps water scientists to better understand drivers of some of the water-related problems they struggle to address through research, while also assisting investors on their journey to assure water sustainable investment policies fit for a water secure, inclusive and circular global economy.

drs. J.G.M. van den Elshout (Janneke)
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