For many businesses and investors, 2020 started with a wake-up call. Larry Fink, the CEO of the world’s largest asset management firm BlackRock, signed his annual letter to chief executives urging them to act on climate. Fink’s message is clear: if businesses are to thrive under climate change, then environmental and social concerns need to be put on par with the quest for financial returns. And Fink is not alone. In the World Economic Forum’s Global Risks Report of 2020, the top five global risks in terms of likelihood are all environmental. These include extreme weather events, failure of climate change mitigation and major biodiversity collapse.
Among these top global risks, there is one which holds the dubious achievement of having been in the World Economic Forum’s list for ten years in a row: water. Since 2011, freshwater crises have remained among the top five most pressing issues of our time in terms of impact. This is concerning, because it means that over the past ten years little has been done by governments, but also investors and businesses, to mitigate water risk. It means that nothing is being done about a risk that we are all aware of. Why is that?
Perhaps the reason is that water has always been a source of risk for society, and so we feel that we can’t do much about it. From the Book of Genesis to the Shatapatha Brahmana, world religions are replete with myths of the great flood submerging everything. Even in language, water often acquires the meaning of a risk. The word rival comes from the Latin rivalis, which originally meant the person using the same stream as another. That person easily became an enemy, a competitor, a threat. And water appears to be a greater risk in times of climate change. Water will be the claws and teeth of climate change, now and in the future. The water risks that we face are numerous: floods, droughts, polluted rivers, drained wetlands, loss of freshwater biodiversity.
It is out of the question that society today faces numerous water risks. However, this is not the reason why we are not doing enough about them. Perhaps the reason millions of people still die because of lack to safe access to water and sanitation and billions of dollars are lost to water risks is because we fail to ask the right questions. We try to predict when the next water crisis will be, without examining the conditions that lead to crisis in the first instance. We fail to see that the story of water is more hopeful. Water is not the new oil, and, in modern history states have not fought over water. Water is not just floods and droughts, it’s also food security and energy production. Successful water management is at heart of some of civilization’s greatest achievements, from public health to the marvels of Dutch polders.
To make sure that water stops being a top global risk, we need to rethink the way we understand water risks. Through an improved understanding of water risks, we can work with water to create value, mitigate climate change and adapt to some of its inevitable impacts. This is particularly important for businesses and investors, as failure to understand and mitigate water risks can have costly consequences extending across supply chains. In 2011, massive floods and inadequate management responses in Thailand resulted in 884 deaths, 1.5 million homes and 7500 industrial plants damaged. The indirect damage to the global economy was massive: computer prices spiked owing to shortages of hard drives and motor vehicle production was similarly hit, with Toyota losing 2.3 billion dollars because of the interrupted production in its Thai factories.