March 20, 2025 • 22 mins
Water scarcity is no longer a distant threat: By 2030, fresh water demand is expected to outpace supply by 40%. The effects of water stress will be felt in industries from agriculture to e-commerce, putting up to $70 trillion of global GDP at risk, according to the World Resources Institute. Bloomberg Intelligence researcher Melanie Rua is the co-author of a new report on water scarcity. She joins Zero to discuss just how much financial impact companies are already seeing as a result of this issue– and what measures they might take to mitigate it.
Explore further:
- Past episode about Environmental, Social, and Governance policy uncertainty
- Past episode with Breakthrough Energy Ventures’ Eric Toone about green investment opportunities
- Reporting on Galy, a lab-grown cotton startup addressing water consumption
Zero is a production of Bloomberg Green. This episode was produced by Mythili Rao. Special thanks this week to Siobhan Wagner, Sommer Saadi and Magnus Henriksson. Thoughts or suggestions? Email us at zeropod@bloomberg.net. For more coverage of climate change and solutions, visit https://www.bloomberg.com/green.
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to zero. I am Actra Tarti this week water scarcity.
We perhaps take for granted how critical access to water
(00:23):
is for the future of life on this planet, not
just for people around the world to quench their thirst
and have access to good sanitation, but also for the
global economy. Climate change is caused by the accumulation of
green ass castles in the atmosphere, but mostly felt by
humans through the force of water too much in storms
(00:43):
and floods, to little in droufts. From agriculture to e commerce,
water access is central to so many industries, and those
industries are likely to feel pressure as climate change drives
water scarcity. In the years to come. By t thirty,
the fresh water demand is expected to outpace supply by
forty percent. It's a challenge, but also an opportunity. That's
(01:08):
what Bloomberg Intelligence researcher Melanie Ruas says. She's co authored
a new report on water scarcity, and some of the
examples she's shared on just how much financial impact companies
are already seeing as a result of water scarcity really
surprised me. She told me why investors now have enough
data to start to include water risks as they make
(01:29):
investment decisions. Melanie, welcome to the show.
Speaker 2 (01:45):
Thanks so much for having me. It's a pleasure to
be here.
Speaker 1 (01:47):
Now. Water scarcity is not a new issue, but it
is certainly becoming a more alarming issue around the world,
and your job is to dig into areas where investors
need more information to make decisions. What happened last year
that made you decide to focus on the issue of
water scarcity.
Speaker 2 (02:05):
Yeah, absolutely, great question. You know, like you alluded to,
water scarcity is no longer a distant threat. It's a
present day financial and operational risk that companies across sectors
and globally are already facing. You pointed to some scary
stats of how demand for fresh water is expected to
(02:27):
outpace supply by forty percent by twenty thirty. That's only
five years from now, and up to seventy trillion dollars
of global GDP is at risk due to water stress,
you know, according to the World Resources Institute. So in
addition to overuse, to your point, climate change is also
a driver here. We have hotter, drier climate driving more
(02:48):
water demand and at the same time supply shrinks. This
is really contributing to that imbalance. So we're seeing this
risk manifest in real time. But I want to also
stress it's also in different ways. So in Mexico Constellation Brands,
you know, an alcoholic beverage producer abandoned a merely completed brewery,
(03:09):
taking a six hundred and sixty million dollar right down
because of water concerns. You know, the company had to
build a new plant six hundred miles away, which adds
logistics costs and supply chain complexities. But there's also you know,
things happening for semiconductors, like look at semiconductor makers in
Taiwan where water shortages have become a recurring issue. You know,
(03:32):
have been trucking in water and TSMC, Taiwan Semiconductor manufacturing Company,
estimates that over half a billion dollars in revenues at
risk due to drought. So these examples really highlight that
water risk isn't theoretical, it's already affecting companies, their bottom
lines and really their ability to operate. So investors need
(03:53):
to understand which industries and businesses are most exposed to
these challenges, and in the same way, businesses must adapt
or face financial consquences.
Speaker 1 (04:06):
You know, so you talked about food and beverage. You
talked about semiconductor things you wouldn't usually I mean food
and beverage. Yes, of course there's water involved, but semiconductors
people typically don't think about the use of water. But
there are other industries where water isn't the primary focus,
and yet it can bring things to a halt. So
I'm thinking power plants exact, natural gas pop plants, coal
(04:28):
pop plants, any thermal power plant needs a lot of water.
But tell me more, also about AI. There is a
huge amount of water need for AI data centers, right.
Speaker 2 (04:38):
Yep, exactly that. You know, water risks really shows up
in different ways across industries. To your point, Yes, there's
obvious water intensive industries, agriculture, peril, power, the less obvious.
So I hinted at semiconductors. You know, can talk a
little bit about that. How manufacturing chips require one point
four to one point six Leaders of water, leader of
(05:00):
ultrapure water use. Also, forty percent of semiconductor plants announced
since twenty twenty one are being built in water stressed areas,
including Arizona, where concerns over water access are already emerging.
But to your point, something that's not so obvious data
centers generate a lot of heat. They need cooling, and
water based cooling is generally the most efficient, but it
(05:24):
is water base and so AI driven data centers. They've
used almost two billion gallons of water in twenty twenty
three in Virginia alone. You know, we mentioned this in
the report, a sixty four percent increase since twenty nineteen.
You have companies like Microsoft and AWS Amazon Web Services
that have set water positive targets for twenty thirty, meaning
(05:46):
they're replenishing more water than they're using. But the scale
of water use in this industry is enormous, and you know,
water scarcity is already reshaping industries and forcing companies to
really rethink sourcing, product and expansion plans.
Speaker 1 (06:02):
So in typical decisions that investors are trying to make
about which company to invest in and understanding what risks
the companies that they have in their portfolio might be facing.
Climate change and carbon dioxide features quite high in these
environmental social governance metrics. But on the environment, water is
(06:23):
kind of now getting to the point where there's reporting happening,
and with your report and others that have come around
water scarcity, it's starting to become an issue that is
being highlighted. Yet are there investors who are making decisions
based on water scarcity just like there are investors today
(06:43):
that make decisions based on COO two emissions.
Speaker 2 (06:47):
Yep, So you know exactly what you're talking about, you know,
for investors when we're talking about risk, you know, like
this really means assessing portfolio exposure to water intensive industries
and being able to tie identify the companies which are
most at risk. And beyond corporate exposure, banks and investors
are also exposed through their lending and financing decisions. But
(07:11):
to your point, it's not really a risk that's yet
widely disclosed. Just to cover a bit, you know, our
analysis did look at financed water consumption, finding that banks
like Bank of America, Wells Fargo, some of the largest
finance also some of the highest water consumption and risk
exposure in such water intensive industries. And yet water risk
(07:33):
hasn't to your point, been accounted for in the same
way as finance CO two missions.
Speaker 1 (07:38):
And so the finance part of it here is the
fact that if a bank is lending money to a
company that then has either consumption of water or is
producing CO two, those emissions, or that water consumption is
then considered as financed water or financed emissions on the
books of the lender, And does the lender is being
(07:59):
exposed to all this that the company that has taken
their money is going to be facing.
Speaker 2 (08:04):
Yep, exactly. That we really just apply similar to the
CO two finance emissions methodology of you know, the PEA
CAF methodology, doing the same thing for water. And so
though for investors they don't yet systematically price in water risk,
as these financial impacts grow, it's really going to become
increasingly difficult to ignore. Right the cost of inactions already evident.
(08:28):
You know, investors who don't proactively assess their exposure might
find themselves holding companies with significant unrecognized liabilities.
Speaker 1 (08:38):
Yeah. Now we are going to talk about solutions and
opportunities in the space, but before that, can you spill
out some of the worst case scenarios that might happen,
or perhaps there are already case studies that you can
point to saying this could have been a cause that
would have been avoided had they thought about water scarcity risk.
Speaker 2 (08:57):
Yeah. Absolutely, I think this really goes back to the
idea of the report of how water risks shows up
in different ways, and we really want to highlight the
importance of focusing on water intensive industries. So giving you
like real examples. Looking at agriculture, a quarter of the
world's food crops are grown in high water stress regions.
You know, severe drought in Brazil Ca Arabica coffee production
(09:21):
by eleven million bags, which really cause an eighty percent
spike in future prices. And yes, though coffee prices surged
exceptionally high levels due to impart to drought as well
as flooding in some cases. In apparel, half of the
world's cotton crop will be exposed to drought by twenty forty.
You know, you have companies like Nike whose supply chain
relies on cotton for eighty percent of its water footprint.
(09:43):
They're investing in recycled fabrics and waterless dying techniques. So
there are companies also like Levi's pushing cottonized hemp, which
uses a quarter of the water needed for cotton. I
mentioned semiconductors on the production side, but it's the development too, right,
Like the forty percent of semiconductor plants since twenty twenty
(10:04):
one that are being built in water stressed areas. You know,
water can basically slow or halt growth depending on access
of it. So these are also like a few ways
in which investors can really think of water risk and
sometimes in ways that are not so obvious. For the
industry agriculture, like I mentioned, it was a lot about crops,
(10:27):
but Archie Daniel's Midland their carbon sequestration facility leaked due
to compromise monitoring wells, So this raised concerns over long
term water security risks and shell. Yes, you know water
is needed in extractive industries, but they agreed in California
to a two hundred and thirty million dollars settlement over
contaminated wells. So this really shows that companies are not
(10:49):
only vulnerable to water scarcity but also water related liability.
Speaker 1 (11:02):
After the break, more of my conversation with Bloomberg Intelligence
researcher Melanie Rua. And if you've been enjoying this episode,
please take a moment to rate and review the show
on Apple Podcasts or Spotify. It helps other listeners find
the show now. In terms of technologies in the climate space,
(11:26):
there are a myriad of technologies that are now available
to try and start to reduce emissions from sectors. What
are the technology solutions available to try and deal with
water scarcity?
Speaker 2 (11:38):
Yes, so I do have to say there's not one
solution for something like this, the water crisis. It's really
fueling demand for alternative water sources, efficiency technologies, the sustainable materials,
you know. To give you some more insights on these
different solutions. On desalination and treatment, you have companies like Veolia,
(12:01):
who plans to boost revenue from water treatment technologies by
fifty percent by twenty thirty. On cooling tech, you have
Lenovo's Neptune liquid cooled servers, which reduce power consumption by
forty percent, cutting water needs. And then you have alternative fibers.
So Gailey, which H and M invested in, is developing
(12:22):
lab grown cotton which uses ninety seven to ninety nine
percent less water than conventional cotton. So while yes, there's
multiple solutions, there's also trade offs. Right, Desalination is energy
intensive and switching from water cooling to air cooling and
data centers. While it may be more efficient stuff, this
(12:44):
would increase energy demand, can drive expenses, and it doesn't
work everywhere. So investors really need to evaluate that cost
benefit equation of.
Speaker 1 (12:54):
These companies like Gailey that I've written about which will
link in the show notes. You know, interesting technology, but
adoption of those kinds of technologies that are mass scale
takes time, takes people to experiment. So yeah, there are
options available, but for water scarcity that is coming so
soon or is already here in many cases, there have
(13:15):
to be other options for investors to think about. Now again,
I'm taking the CO two lens, which I understand. Investors
have models now, quite sophisticated models where they can estimate
if this is the pathway that the world is taking,
this is the level of warming that the world is
likely to have. These are the companies in our portfolio
that become an investable that may have stranded assets on
(13:37):
their books, and so we should start to reduce our
exposure to these companies. Is that level of modeling available
for water scarcity for investors to be able to start
making decisions today?
Speaker 2 (13:48):
Oh? Absolutely, to your point, right, Like companies with high
exposures need to be on the investors watch list, and
there is data available to do that. In the report
we include this. We have asset level now that leverages
Bloomberg's company acid data and wri's aqueduct tool. So we
really identified asset exposure to water stress out to twenty
(14:09):
thirty again five years from now, and you could do
it under three different scenarios pessimistic, optimistic, or business as usual.
We chose to do business as usual, and we did
it for metals and mining, power generation, and we also
did it for steel producers. And just to share insights
on that, we found that Spanish power company in Dessa
nearly seventy percent of its power plans could face high
(14:32):
or extremely high water stress in twenty thirty. Similarly, we
see Fresnillo where seventy percent of their metals and minds
are also in areas of high or extremely high water stress,
compared with you know, just fifty seven percent of bar
(14:52):
gold mines. And so this really is showing the risk
side of how you know, industry industries rely on water
for their cooling. You know, we're talking about power green
for production or for metals in mind extraction exposure to
water stress. So lack of access to water can really
(15:12):
be disruptive and huge risk to investors who are also
exposed to these companies.
Speaker 1 (15:18):
And where are there still data gaps and what is
being done about it? At a regulatory level, or at
a corporate level, or at an investor level.
Speaker 2 (15:28):
Great question. So in terms of data gaps, I do
have to say, while it's probably still early on or nascent,
in terms of having robust nature related data and water,
I do have to say there is sufficient data to
be able to make investment decisions and really draw out insights.
(15:50):
It would be great for more disclosure, you know, going
back to our financed water analysis, there were a lot
of limitations simply because of the fact that not all
banks are disclosing the purpose of their loans and for
their borrowers. Not all companies are disclosing their water consumption
(16:11):
or exposure to water stress, right, So that really falls
on just more more disclosure, more transparency. But water scarcity
is intensifying, the financial risks are already being fell and
companies are being forced to act. So I mentioned there's
enough data exists for investment decisions. We find that water
(16:32):
is deemed financially material for nearly half of Bloomberg's easy
scoring peer groups. This is forty seven industries out of
one hundred and six, you know, twenty twenty four A
loan has shown how urgent this is from record low
Rhne river levels, disrupting supply chains, to drought in Brazil,
driving food inflation. You know, these risks are already shaping markets.
(16:54):
Financial costs are driving action, right. I mentioned Constellation six
hundred and sixty million dollars right down, but they're not
all basfs. Two hundred and fifty million euro loss from
Ryan River disruptions is another example. Or Intel was one
of the companies whose Arizona expansion is facing water constraints.
And you mentioned policy well three ms ten billion dollars
(17:16):
in PFAS settlements. All show how water related risks are
materializing into real losses and how companies are being forced
to address these challenges, whether proactively or reactively. And we
were able to use a lot of this data to
be able to identify a company level like asset level
exposure and being able to really identify also those who
(17:36):
are taking action right like being able to adapt to
the such risks.
Speaker 1 (17:41):
Right. This is the theory that has been for a
long time considered important that there are non financial metrics
that have financial impact on companies. It's not just carbon,
it's water, but it's so many other things, right, and
we're going through this period where these non financial metrics
which are broadly cossed under ESG Environmental social governance is
(18:03):
seeing a political backlash. You're seeing that in the US
with the presidency of Donald Trump, but even before Trump
came to power, there were all these Republicans going after
investors to try and get them to not invest on
ESG criteria. Then you're seeing some of the ramifications show
up in Europe. We ran a recent episode on Zero
(18:24):
looking at how the ESG backlash is causing Europe, which
is a leader in rule making on ESG, to start
to undo some of them to try and please investors,
but also try and manage the relations across the Atlantic. So,
if water is so important, and we know COO two
is so important, how are you seeing investors think about
(18:46):
ESG in this moment and start to actually still take
the decisions that are necessary for investments, but perhaps do
it in a way where they're not advertising to the world.
Speaker 2 (18:57):
Yes, great question and very time. To your point, I mean, look,
the backlash against is she investing. Yes, it's led to
increased scrutiny on climate related disclosures, for example, some sustainability initiatives.
But to your point, you know, when it comes to
issues like water, especially in this report, we're really talking
(19:20):
about a financially material issue that companies and investors cannot
afford to ignore. This isn't about ideology, It's about economics, right,
Like global GDPs at risk, and we have real world
examples of companies already facing operational shutdowns, rising costs, stranded assets,
all due to water stress, water scarcity, drought and what
(19:42):
have you. And the number of incidents. It's not just
increasing but intensifying, right, meaning companies and investors will have
to deal with these risks, whether or not is she
is politically popular if you will yes. At the same time,
policies uncertainty is a risks you know you mentioned and
you're up some of the undoing of some rules well
(20:03):
you know here in the US, particularly under the Trump administration,
which has signaled the rollback of environmental regulations. I can
give an example, right the EPA's new PFAZ Drinking Water rule,
So it requires utilities and companies to meet strict contamination
limits for forever chemicals to give background, the role will
cost US businesses and utilities around one point five billion
(20:26):
dollars annually with significant compliance and litigation risks for companies
like three m which I mentioned earlier, DuPont Keymores. You
know they've already settled over eleven billion dollars in PFAS
related lawsuits. And if the role is rolled back, which
I do think likely, but you know, if it is
even weakened, it could shift financial liabilities from regulated companies
(20:49):
back onto local governments and taxpayers, but increasing uncertainty for
businesses really trying to manage long term water risks.
Speaker 1 (20:58):
This is very insightful. Thank you so much for this
report on motor scarcity, and thank you for coming on
the show.
Speaker 2 (21:05):
Yeah, my pleasure.
Speaker 1 (21:15):
Thank you for listening to Zero. And now for the
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(21:35):
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Special Thanks to Shwan Wagner and Jessica beck I, am
(21:56):
Akshatrati back So
Welcome to zero. I am Actra Tarti this week water scarcity.
We perhaps take for granted how critical access to water
(00:23):
is for the future of life on this planet, not
just for people around the world to quench their thirst
and have access to good sanitation, but also for the
global economy. Climate change is caused by the accumulation of
green ass castles in the atmosphere, but mostly felt by
humans through the force of water too much in storms
(00:43):
and floods, to little in droufts. From agriculture to e commerce,
water access is central to so many industries, and those
industries are likely to feel pressure as climate change drives
water scarcity. In the years to come. By t thirty,
the fresh water demand is expected to outpace supply by
forty percent. It's a challenge, but also an opportunity. That's
(01:08):
what Bloomberg Intelligence researcher Melanie Ruas says. She's co authored
a new report on water scarcity, and some of the
examples she's shared on just how much financial impact companies
are already seeing as a result of water scarcity really
surprised me. She told me why investors now have enough
data to start to include water risks as they make
(01:29):
investment decisions. Melanie, welcome to the show.
Speaker 2 (01:45):
Thanks so much for having me. It's a pleasure to
be here.
Speaker 1 (01:47):
Now. Water scarcity is not a new issue, but it
is certainly becoming a more alarming issue around the world,
and your job is to dig into areas where investors
need more information to make decisions. What happened last year
that made you decide to focus on the issue of
water scarcity.
Speaker 2 (02:05):
Yeah, absolutely, great question. You know, like you alluded to,
water scarcity is no longer a distant threat. It's a
present day financial and operational risk that companies across sectors
and globally are already facing. You pointed to some scary
stats of how demand for fresh water is expected to
(02:27):
outpace supply by forty percent by twenty thirty. That's only
five years from now, and up to seventy trillion dollars
of global GDP is at risk due to water stress,
you know, according to the World Resources Institute. So in
addition to overuse, to your point, climate change is also
a driver here. We have hotter, drier climate driving more
(02:48):
water demand and at the same time supply shrinks. This
is really contributing to that imbalance. So we're seeing this
risk manifest in real time. But I want to also
stress it's also in different ways. So in Mexico Constellation Brands,
you know, an alcoholic beverage producer abandoned a merely completed brewery,
(03:09):
taking a six hundred and sixty million dollar right down
because of water concerns. You know, the company had to
build a new plant six hundred miles away, which adds
logistics costs and supply chain complexities. But there's also you know,
things happening for semiconductors, like look at semiconductor makers in
Taiwan where water shortages have become a recurring issue. You know,
(03:32):
have been trucking in water and TSMC, Taiwan Semiconductor manufacturing Company,
estimates that over half a billion dollars in revenues at
risk due to drought. So these examples really highlight that
water risk isn't theoretical, it's already affecting companies, their bottom
lines and really their ability to operate. So investors need
(03:53):
to understand which industries and businesses are most exposed to
these challenges, and in the same way, businesses must adapt
or face financial consquences.
Speaker 1 (04:06):
You know, so you talked about food and beverage. You
talked about semiconductor things you wouldn't usually I mean food
and beverage. Yes, of course there's water involved, but semiconductors
people typically don't think about the use of water. But
there are other industries where water isn't the primary focus,
and yet it can bring things to a halt. So
I'm thinking power plants exact, natural gas pop plants, coal
(04:28):
pop plants, any thermal power plant needs a lot of water.
But tell me more, also about AI. There is a
huge amount of water need for AI data centers, right.
Speaker 2 (04:38):
Yep, exactly that. You know, water risks really shows up
in different ways across industries. To your point, Yes, there's
obvious water intensive industries, agriculture, peril, power, the less obvious.
So I hinted at semiconductors. You know, can talk a
little bit about that. How manufacturing chips require one point
four to one point six Leaders of water, leader of
(05:00):
ultrapure water use. Also, forty percent of semiconductor plants announced
since twenty twenty one are being built in water stressed areas,
including Arizona, where concerns over water access are already emerging.
But to your point, something that's not so obvious data
centers generate a lot of heat. They need cooling, and
water based cooling is generally the most efficient, but it
(05:24):
is water base and so AI driven data centers. They've
used almost two billion gallons of water in twenty twenty
three in Virginia alone. You know, we mentioned this in
the report, a sixty four percent increase since twenty nineteen.
You have companies like Microsoft and AWS Amazon Web Services
that have set water positive targets for twenty thirty, meaning
(05:46):
they're replenishing more water than they're using. But the scale
of water use in this industry is enormous, and you know,
water scarcity is already reshaping industries and forcing companies to
really rethink sourcing, product and expansion plans.
Speaker 1 (06:02):
So in typical decisions that investors are trying to make
about which company to invest in and understanding what risks
the companies that they have in their portfolio might be facing.
Climate change and carbon dioxide features quite high in these
environmental social governance metrics. But on the environment, water is
(06:23):
kind of now getting to the point where there's reporting happening,
and with your report and others that have come around
water scarcity, it's starting to become an issue that is
being highlighted. Yet are there investors who are making decisions
based on water scarcity just like there are investors today
(06:43):
that make decisions based on COO two emissions.
Speaker 2 (06:47):
Yep, So you know exactly what you're talking about, you know,
for investors when we're talking about risk, you know, like
this really means assessing portfolio exposure to water intensive industries
and being able to tie identify the companies which are
most at risk. And beyond corporate exposure, banks and investors
are also exposed through their lending and financing decisions. But
(07:11):
to your point, it's not really a risk that's yet
widely disclosed. Just to cover a bit, you know, our
analysis did look at financed water consumption, finding that banks
like Bank of America, Wells Fargo, some of the largest
finance also some of the highest water consumption and risk
exposure in such water intensive industries. And yet water risk
(07:33):
hasn't to your point, been accounted for in the same
way as finance CO two missions.
Speaker 1 (07:38):
And so the finance part of it here is the
fact that if a bank is lending money to a
company that then has either consumption of water or is
producing CO two, those emissions, or that water consumption is
then considered as financed water or financed emissions on the
books of the lender, And does the lender is being
(07:59):
exposed to all this that the company that has taken
their money is going to be facing.
Speaker 2 (08:04):
Yep, exactly. That we really just apply similar to the
CO two finance emissions methodology of you know, the PEA
CAF methodology, doing the same thing for water. And so
though for investors they don't yet systematically price in water risk,
as these financial impacts grow, it's really going to become
increasingly difficult to ignore. Right the cost of inactions already evident.
(08:28):
You know, investors who don't proactively assess their exposure might
find themselves holding companies with significant unrecognized liabilities.
Speaker 1 (08:38):
Yeah. Now we are going to talk about solutions and
opportunities in the space, but before that, can you spill
out some of the worst case scenarios that might happen,
or perhaps there are already case studies that you can
point to saying this could have been a cause that
would have been avoided had they thought about water scarcity risk.
Speaker 2 (08:57):
Yeah. Absolutely, I think this really goes back to the
idea of the report of how water risks shows up
in different ways, and we really want to highlight the
importance of focusing on water intensive industries. So giving you
like real examples. Looking at agriculture, a quarter of the
world's food crops are grown in high water stress regions.
You know, severe drought in Brazil Ca Arabica coffee production
(09:21):
by eleven million bags, which really cause an eighty percent
spike in future prices. And yes, though coffee prices surged
exceptionally high levels due to impart to drought as well
as flooding in some cases. In apparel, half of the
world's cotton crop will be exposed to drought by twenty forty.
You know, you have companies like Nike whose supply chain
relies on cotton for eighty percent of its water footprint.
(09:43):
They're investing in recycled fabrics and waterless dying techniques. So
there are companies also like Levi's pushing cottonized hemp, which
uses a quarter of the water needed for cotton. I
mentioned semiconductors on the production side, but it's the development too, right,
Like the forty percent of semiconductor plants since twenty twenty
(10:04):
one that are being built in water stressed areas. You know,
water can basically slow or halt growth depending on access
of it. So these are also like a few ways
in which investors can really think of water risk and
sometimes in ways that are not so obvious. For the
industry agriculture, like I mentioned, it was a lot about crops,
(10:27):
but Archie Daniel's Midland their carbon sequestration facility leaked due
to compromise monitoring wells, So this raised concerns over long
term water security risks and shell. Yes, you know water
is needed in extractive industries, but they agreed in California
to a two hundred and thirty million dollars settlement over
contaminated wells. So this really shows that companies are not
(10:49):
only vulnerable to water scarcity but also water related liability.
Speaker 1 (11:02):
After the break, more of my conversation with Bloomberg Intelligence
researcher Melanie Rua. And if you've been enjoying this episode,
please take a moment to rate and review the show
on Apple Podcasts or Spotify. It helps other listeners find
the show now. In terms of technologies in the climate space,
(11:26):
there are a myriad of technologies that are now available
to try and start to reduce emissions from sectors. What
are the technology solutions available to try and deal with
water scarcity?
Speaker 2 (11:38):
Yes, so I do have to say there's not one
solution for something like this, the water crisis. It's really
fueling demand for alternative water sources, efficiency technologies, the sustainable materials,
you know. To give you some more insights on these
different solutions. On desalination and treatment, you have companies like Veolia,
(12:01):
who plans to boost revenue from water treatment technologies by
fifty percent by twenty thirty. On cooling tech, you have
Lenovo's Neptune liquid cooled servers, which reduce power consumption by
forty percent, cutting water needs. And then you have alternative fibers.
So Gailey, which H and M invested in, is developing
(12:22):
lab grown cotton which uses ninety seven to ninety nine
percent less water than conventional cotton. So while yes, there's
multiple solutions, there's also trade offs. Right, Desalination is energy
intensive and switching from water cooling to air cooling and
data centers. While it may be more efficient stuff, this
(12:44):
would increase energy demand, can drive expenses, and it doesn't
work everywhere. So investors really need to evaluate that cost
benefit equation of.
Speaker 1 (12:54):
These companies like Gailey that I've written about which will
link in the show notes. You know, interesting technology, but
adoption of those kinds of technologies that are mass scale
takes time, takes people to experiment. So yeah, there are
options available, but for water scarcity that is coming so
soon or is already here in many cases, there have
(13:15):
to be other options for investors to think about. Now again,
I'm taking the CO two lens, which I understand. Investors
have models now, quite sophisticated models where they can estimate
if this is the pathway that the world is taking,
this is the level of warming that the world is
likely to have. These are the companies in our portfolio
that become an investable that may have stranded assets on
(13:37):
their books, and so we should start to reduce our
exposure to these companies. Is that level of modeling available
for water scarcity for investors to be able to start
making decisions today?
Speaker 2 (13:48):
Oh? Absolutely, to your point, right, Like companies with high
exposures need to be on the investors watch list, and
there is data available to do that. In the report
we include this. We have asset level now that leverages
Bloomberg's company acid data and wri's aqueduct tool. So we
really identified asset exposure to water stress out to twenty
(14:09):
thirty again five years from now, and you could do
it under three different scenarios pessimistic, optimistic, or business as usual.
We chose to do business as usual, and we did
it for metals and mining, power generation, and we also
did it for steel producers. And just to share insights
on that, we found that Spanish power company in Dessa
nearly seventy percent of its power plans could face high
(14:32):
or extremely high water stress in twenty thirty. Similarly, we
see Fresnillo where seventy percent of their metals and minds
are also in areas of high or extremely high water stress,
compared with you know, just fifty seven percent of bar
(14:52):
gold mines. And so this really is showing the risk
side of how you know, industry industries rely on water
for their cooling. You know, we're talking about power green
for production or for metals in mind extraction exposure to
water stress. So lack of access to water can really
(15:12):
be disruptive and huge risk to investors who are also
exposed to these companies.
Speaker 1 (15:18):
And where are there still data gaps and what is
being done about it? At a regulatory level, or at
a corporate level, or at an investor level.
Speaker 2 (15:28):
Great question. So in terms of data gaps, I do
have to say, while it's probably still early on or nascent,
in terms of having robust nature related data and water,
I do have to say there is sufficient data to
be able to make investment decisions and really draw out insights.
(15:50):
It would be great for more disclosure, you know, going
back to our financed water analysis, there were a lot
of limitations simply because of the fact that not all
banks are disclosing the purpose of their loans and for
their borrowers. Not all companies are disclosing their water consumption
(16:11):
or exposure to water stress, right, So that really falls
on just more more disclosure, more transparency. But water scarcity
is intensifying, the financial risks are already being fell and
companies are being forced to act. So I mentioned there's
enough data exists for investment decisions. We find that water
(16:32):
is deemed financially material for nearly half of Bloomberg's easy
scoring peer groups. This is forty seven industries out of
one hundred and six, you know, twenty twenty four A
loan has shown how urgent this is from record low
Rhne river levels, disrupting supply chains, to drought in Brazil,
driving food inflation. You know, these risks are already shaping markets.
(16:54):
Financial costs are driving action, right. I mentioned Constellation six
hundred and sixty million dollars right down, but they're not
all basfs. Two hundred and fifty million euro loss from
Ryan River disruptions is another example. Or Intel was one
of the companies whose Arizona expansion is facing water constraints.
And you mentioned policy well three ms ten billion dollars
(17:16):
in PFAS settlements. All show how water related risks are
materializing into real losses and how companies are being forced
to address these challenges, whether proactively or reactively. And we
were able to use a lot of this data to
be able to identify a company level like asset level
exposure and being able to really identify also those who
(17:36):
are taking action right like being able to adapt to
the such risks.
Speaker 1 (17:41):
Right. This is the theory that has been for a
long time considered important that there are non financial metrics
that have financial impact on companies. It's not just carbon,
it's water, but it's so many other things, right, and
we're going through this period where these non financial metrics
which are broadly cossed under ESG Environmental social governance is
(18:03):
seeing a political backlash. You're seeing that in the US
with the presidency of Donald Trump, but even before Trump
came to power, there were all these Republicans going after
investors to try and get them to not invest on
ESG criteria. Then you're seeing some of the ramifications show
up in Europe. We ran a recent episode on Zero
(18:24):
looking at how the ESG backlash is causing Europe, which
is a leader in rule making on ESG, to start
to undo some of them to try and please investors,
but also try and manage the relations across the Atlantic. So,
if water is so important, and we know COO two
is so important, how are you seeing investors think about
(18:46):
ESG in this moment and start to actually still take
the decisions that are necessary for investments, but perhaps do
it in a way where they're not advertising to the world.
Speaker 2 (18:57):
Yes, great question and very time. To your point, I mean, look,
the backlash against is she investing. Yes, it's led to
increased scrutiny on climate related disclosures, for example, some sustainability initiatives.
But to your point, you know, when it comes to
issues like water, especially in this report, we're really talking
(19:20):
about a financially material issue that companies and investors cannot
afford to ignore. This isn't about ideology, It's about economics, right,
Like global GDPs at risk, and we have real world
examples of companies already facing operational shutdowns, rising costs, stranded assets,
all due to water stress, water scarcity, drought and what
(19:42):
have you. And the number of incidents. It's not just
increasing but intensifying, right, meaning companies and investors will have
to deal with these risks, whether or not is she
is politically popular if you will yes. At the same time,
policies uncertainty is a risks you know you mentioned and
you're up some of the undoing of some rules well
(20:03):
you know here in the US, particularly under the Trump administration,
which has signaled the rollback of environmental regulations. I can
give an example, right the EPA's new PFAZ Drinking Water rule,
So it requires utilities and companies to meet strict contamination
limits for forever chemicals to give background, the role will
cost US businesses and utilities around one point five billion
(20:26):
dollars annually with significant compliance and litigation risks for companies
like three m which I mentioned earlier, DuPont Keymores. You
know they've already settled over eleven billion dollars in PFAS
related lawsuits. And if the role is rolled back, which
I do think likely, but you know, if it is
even weakened, it could shift financial liabilities from regulated companies
(20:49):
back onto local governments and taxpayers, but increasing uncertainty for
businesses really trying to manage long term water risks.
Speaker 1 (20:58):
This is very insightful. Thank you so much for this
report on motor scarcity, and thank you for coming on
the show.
Speaker 2 (21:05):
Yeah, my pleasure.
Speaker 1 (21:15):
Thank you for listening to Zero. And now for the
sound of the week. That's the sound of a salmon
cannon and it does what it says, which is helped
salmon cross a dam and continue their migration down a river.
If you like this episode, please take a moment to
rate and review the show on Apple Podcasts and Spotify.
(21:35):
Share this episode with a friend or with someone who
is thirsty. You can get in touch at zero pod
at Bloomberg dot Nex. Zero's producer is Mithlero, Bloomberg's head
a podcast is Sage Pauman, and head of Talk is
Brendan Muni. Our theme music is composed by wonder Land
Special Thanks to Shwan Wagner and Jessica beck I, am
(21:56):
Akshatrati back So
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