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This knowledge hub focuses on water disclosure in finance and is specifically geared towards financial institutions (FIs). The hub pulls together information and resources that are designed to support FIs in assessing water risks and opportunities in their sustainability journey.
The problem
The potential financial impact of water risk is:
This is based on responses to the CDP Water Security questionnaire in 2023, from 922 companies that recorded both potential financial impact of water risks and the cost of mitigating those risks (Source: CDP '2023 Disclosure Data Factsheet').
The global environmental crisis is also a water crisis, and it bears tangible consequences for financial institutions. Storms, floods, and droughts could cause economic losses of US$5.6 trillion by 2050 (Source: CDP 'Financial Institutions are Valuing Water'). There are already US$15 billion of assets stranded or at risks (Source: CDP 'High and Dry: How Water Issues are Stranding Assets') in the energy and mining sectors due to water risks, and entire supply chains are at risk (Source: CDP 'Global Water Report 2023').
Beyond financial risks, water is also important due to its double materiality – both how nature impacts business and vice-versa, the impacts of financial decisions on the water cycle (Source: CDP 'Finance Water Action Pathway').
Read CDP’s new briefing for directors of financial institutions on why they need to care about the water crisis.
The impacts that economic and financial actors have on nature affect the financial risks these actors need to manage.Network for Greening the Financial System [1]
How Taiwanese semiconductor leader UMC is tackling the water crisis
Semiconductors are very water intensive. Meanwhile, sales are forecast to reach US$602 billion in 2024 with important geopolitical consequences, in particular for Asia. For instance, in 2021, Taiwan experienced its worst drought in over 50 years.
Since its creation in 1980, United Microelectronics Corporation (UMC) has been a prominent leader of the Taiwanese semiconductor industry.
In this video, UMC Vice President TS Wu tells us how the company is navigating water risks:
The current situation
CDP created a first-of-its-kind financial sector water questionnaire, and released the first results in 2022. This data suggests that water risks remain an under-prioritized issue in the financial sector.
In a 2023 CDP survey of 275 financial institutions, only a third are undertaking water-related risk assessments (Source: CDP 'Financial Institutions are Valuing Water') despite there being a financial interest in doing so (Source: CDP 'Global Water Report 2022').
The Financial Sector Water Action Platform (Source: CDP) also provides insight on FIs disclosing to CDP – in 2023, 350 disclosed to CDP.
The importance of disclosure and available guidance
As climate disclosure has now made it to the mainstream, disclosure for nature and water-related risks is also rapidly emerging as a key component of any organisation’s sustainability journey. The Water and Marine Resources standard (ESRS E3) contains references to water consumption and water recycled or reused, along with any material adverse impacts on marine ecosystems.
The Taskforce on Nature-related Financial Disclosures (TNFD) establishes disclosure recommendations and guidance for nature-related reporting. Supporting this trend, CDP published the 10 principles for High Quality Mandatory Disclosure in 2023.
CDP's publication of the Finance Water Action Pathway in 2023 represents the first water agenda for financial institutions.
Damage to the natural environment is slowing the UK economy, and could lead to an estimated 12% reduction to GDP in the years ahead – larger than the hit to GDP from the global financial crisis or Covid-19. This is equivalent to wiping around £150-300 billion off GDP.Green Finance Institute [2]
Start your journey
Engage and disclose
Explore examples of innovative strategies developed by FIs.
Ready to take action? Our program supports capital markets in accessing CDP’s unique environmental data, inform action and engage with stakeholders.
Learn how our new streamlined questionnaire helps stakeholders to measure their impact, manage risks and opportunities, report on progress with transparency, and commit to proactive action.
Track progress and foster change
Footnotes
1. Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and Supervisors (Network for Greening the Financial System)
2. Assessing the Materiality of Nature-Related Financial Risks for the UK (Green Finance Institute)
