• Erste Asset Management has published its first water footprint for its sustainable equity funds
  • Water shortage among the top five most salient risks worldwide
  • Regional distribution of water consumption is crucial

Erste Asset Management (Erste AM) is assuming a pioneering role by publishing the water footprint of its equity funds, in line with the CO2 footprint: the responsible use of water is to become more important as a result of the pressure exerted by investors. This comes with two benefits: by taking into account this aspect in the selection process of securities, fund managers can reduce both water risk and the connected water footprint.

Drought, poverty, and flight

Clean drinking water is a dwindling good. The World Economic Forum rates a global water crisis as fifth-biggest risk for the coming years.

According to the World Resources Institute, every seventh person today lives in a region with scarce water resources. By 2025, this number could increase to 3.5bn, i.e. to almost half the world’s population. Pollution and the resulting threat to freshwater springs is one of the most frequent reasons for water shortages.

Pioneering work in the field of water footprints

The models that facilitate the establishment of the water footprint uses the volume of water used and reported by companies as input variable for the calculation of water intensity. “We are pioneers in this field. In order to ensure a reliable set of data, we take into account only those data that have been supplied by several providers. Data available for less than 80% of relevant business activity are not used in the model,” explains Hatak. 

“Even though our water data currently only cover about half of our equity holdings, it is important for us to promote the availability of reliable water data. We achieve this goal on the one hand by publishing the water footprint itself, and on the other hand by entering into an intensive dialogue with our research partners,” as Hatak points out.

Water footprint at 9.4mn litres of water per USD 1mn in sales

On the basis of the calculations of the ESG Research Team of Erste AM, the water use of a global, listed company amounts to 9.4mn litres of water (about 9,400m3) per USD 1mn in sales.
 

Region                                   Water intensity in m3/USD in sales

Global equities                       9,399

North American equities        14,997

European equities                  2,856

Sources: data provided by Bloomberg, MSCI ESG, oekom research AG; calculations by Erste AM, water and sales data FY 2014-2017; values weighted by MCap

Location, location, location

Whereas every tonne of CO2 emitted or saved makes a global difference, water shortage is a local problem. “The relevant unit is therefore every regionally confined water catchment area,” explains Hatak. The water footprint sorts the regions of business activities in terms of water stress level from low to high. The higher the stress level, the higher the water risk.

For example, fruit cultivation in the Austrian region of Wachau (Lower Austria) is safe, whereas in the dry regions of California it is problematic. “Water consumption first has to be allocated to the region where the company operates in order to assess the risk of water shortage,” concludes Hatak.