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, Institutional Shareholder Services Germany 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.