Why Water Risk Matters for Sustainable Investing

Water is one of the world’s most complex and financially relevant natural resources. Due to climate change, population growth, and changing consumption patterns, pressure on water sources is increasing.  

For PFZW, and therefore for PGGM as its asset manager, water is an important financial risk to understand within the broader context of sustainable investing. 

“Access to water is unequally distributed worldwide. As demand grows, water is increasingly recognized as both scarce and financially material for economies, companies, and investors,” says Luuk Tupker, Nature & Biodiversity Researcher at PGGM. 

Water is closely connected to PFZW’s focus themes, particularly climate change and nature & biodiversity. 

Climate change is making water availability more uncertain, while biodiversity loss and ecosystem degradation are reducing water quality and weakening the ecosystems that regulate water flows. Sectors such as agriculture and food production are highly dependent on water, but also have a significant impact on it. Negative effects can be amplified in regions where water is already scarce or regions experiencing increasing water stress. Through global supply chains, local problems can have worldwide repercussions. 

“Water has already been identified as a financially material risk for PFZW in the latest double materiality assessment,” adds Dennis Ushiña, Climate and Energy Transition Researcher. “We are specifically talking about freshwater: only 2.5% of all water on earth is fresh, and only a fraction of that is accessible for human use.” 

Water-related risks differ from other ESG risks in that they are highly location-specific and need to be understood and measured locally. They are currently more concrete and better defined than, for example, biodiversity risks, and their consequences can materialize rapidly at local and regional scale. “Water risks are closely linked to for example climate risks, but the key difference is that water must be measured at the local level,” Luuk explains. 

For PGGM and PFZW, this means that water risks need to be explicitly integrated into the investment process. “The challenge is to measure these risks across the entire portfolio, using location data from our investments,” says Luuk. 

In an evolving field, PGGM is exploring how water data and analyses can help assess financial risks more accurately, using tools such as the WWF Water Risk Filter as guidance. 

In this way, we contribute to a future-proof portfolio and a livable world for PFZW’s participants.