Investors are overlooking the risk of water scarcity and the impact it could have on their portfolios in the coming decade, according to investment management firm BlackRock.
Water demand exceeding supply in parts of the world is becoming a larger risk to investors, a headwind to supply chains and a cause of geopolitical tension, said to the firm's research arm, the BlackRock Investment Institute.
"Companies in water-stressed locations may need to spend more to source water, to raise water efficiency and to meet more stringent environmental regulations," Jean Boivin, Brian Deese, Elga Bartsch and Andre Bertolotti wrote in a note. "The risks also have geopolitical dimensions."
A spat over a hydroelectric project in Ethiopia may foreshadow future risk as neighbouring nations Sudan and Egypt worry the dam could reduce water availability.
Shortages of water also play into other climate-related risks, such as hurricanes, wildfires and flooding, the firm said. Companies that are resilient to water stress may fetch a premium as the importance of access to water becomes impossible to ignore, said BlackRock.