At year-end, the “Lex” column in the Financial Times (one of the most influential market columns in the world) featured an imaginary review of the 10 years ending in 2019. One section, titled “Dry China”, looked back on what “could have been averted”1, namely, the water shortage in China. The credit expansion of 2009, “had unleashed too much industrial capacity, consuming too much water.”2  China, with one fifth of world population, had one-twentieth of water supply (rounded), but irrigation investment accounted for only one one-thousandth of loans disbursed in 2009. Nobody wanted to control big, water consuming industries. The gigantic water diversion schemes and dams failed to open up new supplies. (Think of the Aswan Dam or Glen Canyon silting up, or the Soviet water diversion projects). Crops failed. In the scenario, China needs food aid by 2019, the end of decade. Okay, you say, this is just the delusions of a British writer who had been celebrating too much at year-end parties. It’s not real; there’s nothing to worry about.

Don’t be so sure. The editors of Investment Professional (published by the New York Society of Security Analysts, no less) thought otherwise. An article points out that Norway’s huge national investment fund (€276 billion in size) wants companies in its portfolio to adhere to a “certain defined minimum of water risk reporting and management.”3 Of the seven industries on which the fund focused, are water supply (naturally) and power. Water shortages could close down chip manufacturers located in dry locations. Coca-Cola lost its license to withdraw water in an Indian state. What happens when the power plant operator calls the boss to report that the water shortage has closed down the power station?

A Dutch professor laid out three aspects of water risk:

• Physical risk of water shortage – Water becomes unavailable for the industrial process. The company cannot get water.

• Social responsibility risk – The business retains its water supply, but the community around it does not, or the company’s withdrawal of water affects the environment or the community.

  Norway’s national investment fund wants companies in its portfolio to focus on water risk reporting and management.

• Risk to corporate image – The public may view the company’s water usage patterns as anti-environment or anti-social or wasteful, compared to the usage patterns of competitors.

Now for the predictions: Demand for water resources will grow faster than supply. Climate change will reduce water supply in some regions. Therefore, prepare for more regulation of water usage. And remember, financial risk people delivered that message, not environmentalists. That means there is money in water supply – or water shortages.

— Leonard S. Hyman

1 Lex, “Looking back from 2019,” Financial Times, Dec. 31, 2009, p.12.
2 Ibid.
3 Susan Arterian Chang, “A Watershed Moment,” The Investment Professional, fall 2009, p.63.