A Climate (for) Change

U.S. leadership on climate change is being reestablished by the new administration; now we must take steps to address a closely related — and often overlooked — crisis.

As one of his first acts in office, President Joseph R. Biden , Jr., signed an executive order reversing the Trump Administration’s November 2020 withdrawal from the Paris Climate Agreement. The landmark, 197-nation agreement was entered into by President Obama in 2015 and aims to fight climate change by reducing global carbon emissions.

Without the United States’ participation it would be impossible to achieve the Paris Agreement’s targets for carbon emission reduction, and thus its goal of limiting global warming to well below 2 degrees Celsius. Formally restoring the United States’ commitment and leadership in mitigating human-created climate change is a step that quite literally may help save the world.

This is true not just because of the agreement’s emphasis on carbon reduction. In addition to mitigation efforts, the Paris Agreement emphasizes climate change adaptation, which involves managing the negative impacts of climate change. One of the most critical impending climate catastrophes we face affects the very source of life itself: water.

According to the World Economic Forum, water risk is the fourth greatest global societal risk, behind only weapons of mass destruction, failure of climate-change mitigation and adaptation, and extreme weather events. Not coincidentally, the latter two threats also imperil future water security. The increasingly extreme rainfall patterns and desertification caused by climate change mean more flooding and droughts in different parts of the world, which in turn can reduce water availability and quality. The resulting water crises can threaten not only individual livelihoods but also entire food systems as production drops, prices rise, and conflicts ensue.

Two billion people already reside in countries that are experiencing high water stress, the condition in which water demand exceeds supply, according to the United Nations. This could increase to 75% of the global population as soon as 2025.

At the same time, population growth and urbanization are expected to increase global water demand 50 percent by 2050. More people will need water, and fewer people will have it.

In response, the United Nations 2030 Agenda for Sustainable Development has called world leaders and other major actors to action to transform our systems within the next decade. In particular, Sustainable Development Goal 6 aims to “ensure availability and sustainable management of water and sanitation for all.” Meeting this goal is imperative to human health and well-being.

In addition to human health, the effects that changes in access to water will have on businesses will be nothing short of transformational to the global economy. Experts predict that entire industry sectors will be imperiled, including food, beverage, and agriculture; oil and gas; power production; semiconductor production; and more.

Yet the very businesses that can potentially be sunk by changes in water access have the ability to help build a more water-secure future by improving their water management and water stewardship practices. Whether or not they do so, the inevitable fact is that changes in water access will create market winners (those that manage water well) and losers (those that mismanage water resources) -- and in turn, will create significant new investment opportunities.

According to Morgan Stanley, investors can pursue these opportunities while encouraging business to practice good water-related behavior. To do so, they recommend taking such steps as:

  • Encouraging water stewardship and evaluation of water metrics and conservation policies;
  • Monitoring the water footprint in all steps of the supply chain to gain a better understanding of inefficiencies and viable improvements;
  • Prompting companies to improve the quality of their disclosure on water management; and 
  • Ensuring that companies follow the relevant water stewardship code for their industry.

Doing so would reward the companies by reducing operational and financial risks associated with water while rewarding investors who bet on good water stewards in business, creating vital incentives that can drive change.

Soon the United States will rejoin the rest of the world in committing to fighting climate change. Water should be at the center of its efforts, as well. The alignment of the Paris Agreement, Sustainable Development Goals, and a new administration creates just the right climate for change.

Thomas Schumann is the founder of Thomas Schumann Capital®, sponsor of the recently launched TSC Water Risk Index®, the only benchmark index family that tracks water risk in securities.