A quarter of the world’s population is currently exposed to extremely high water stress each year, and that’s expected to grow to 60% by 2050, according to World Resources Institute’s recent Aqueduct 4.0 report. On this episode of the ESG Currents podcast, Sara Walker, WRI’s Director of Corporate Water Engagement, joins Eric Kane, Bloomberg Intelligence’s Director of ESG Research to discuss corporate water targets, water accounting, the concept of ‘virtual water’, and why the local problem of water has global implications.
The episode recorded as of October 19.
ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social megatrends, mounting regulatory attention and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords, and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, brought to you by Bloomberg Intelligence, your guide to navigating the evolving ESG space, one topic at a time. I'm Urricane, director of ESG Research for Bloomberg Intelligence, and I'm your host for today's episode. Today we're talking about water with Sarah Walker, who is the director of Corporate Water Engagement in the Water Program at the World Resources Institution otherwise known as WRI. Sarah, thanks so much for joining the podcast.
Thanks Eric, thanks for having me.
So for our listeners who may be less familiar with WRI and the Water program, I want to start with an overview of the organization and kind of the focus of the water program specifically.
Yeah, sure, Well. WRII is a global research organization and we work at the intersection of development and the environment. And we really aim to make sure people's needs are met while also protecting nature and combating climate change. So we're really trying to address systemic problems with the way we produce food, we manage our land and water, generate energy, and design our cities. And we have nearly two thousand people around the world in various countries trying to make this happen. Within our water work, we're primarily focused on helping companies, community and governments understand their water risks and invest in solutions for a water secure future.
Excellent, And I saw that w or I recently published an update to its aqueduct report Aqueduct to four point zero, and there were some pretty alarming statistics, of course, included in that, one of which is that you know, today about three point six billion people have inadequate access to water at least one month a year, and you're predicting that number to increase quite a bit to more than five billion by twenty fifty. So curious to hear kind of ultimately how you're looking to solve this problem through corporate engagement.
Yeah, the statistics are are quite dire, and we're I think we're fortunate to work with a lot of really innovative and ambitious company. So my work is primarily with the private sector on corporate water stewardship, and Aqueduct does serve as a foundation for a lot of that work. It was created about ten years ago and it's an open access tool for providing peer reviewed data on current and future water risks, including water stress, blood strouts. And like you said, our latest update, Aqueduct four point zero just come out, came out in August, and we have chronic trends on water stress globally and other water risks, and we also have now in this new update, new future projections on water stress, water demand, water supply out to twenty eighty in the tool, and that's based on the latest and greatest climate data. So many in the private sector use this tool to get a handle on where the risks are greatest across their portfolio, so particularly these multinational companies with locations all over the world. It's a really useful screening tool to kind of look across all of your operations, even in your value chain as well, to identify those hot spots and then do some further digging to understand, you know, what's happening on the ground and what kind of steps can be taken. So we provide this tool, we help companies understand these water risks, and then we do other work with companies that kind of builds on that. So with that information, how do you then set targets that mitigate those risks, that make sure that you're doing your part to solve these water challenges. So a lot of our work recently has been on setting meaningful water targets, and there are a variety of options and more entering the scene every day, it seems.
So you mentioned the idea of water targets, I think for those of us in the hPG space, there's been so much focus, of course, in recent years on climate targets, carbon reduction targets in particular. We certainly see more and more companies announcing water targets, but I think it's still a much smaller number than we see with respect to carbon and climate directly. So curious as to kind of your thoughts on why perhaps this issue has not reached that same level of attention that we see with greenhouse gas emissions, even though you know, as the stats suggests, it's equally as dire and obviously certainly related to the overall climate picture.
Yeah, great question. So water is tricky when you compare it to climate in particular. You know, there can carbon emissions have global implications, right, doesn't matter where they come from. You know, it's impacting the globe. Water is very local and so if you reduce water in one area, it's not going to benefit another area. And so that's why it's been so tricky to kind of rally behind a global ambition on water, and it does really just come down to local conditions in basins. So we've worked with some partners to develop guidance on how to think about the local context when setting targets, for setting site based targets, enterprise wide targets for companies where they can kind of factor in water risks in every basin where they have activities. You know, what's the current condition in that basin, what's the desired condition, and what's that change that's needed to solve shared water challenges in those basins? And then you layer in the company footprint, you know, what's how are they contributing to these challenges? How can they be contributing to solving them? You know, what, what's the proper level of ambition for them to help meet desired conditions. So we've been doing a lot of thinking around that and a lot of work with companies to kind of understand that. And it does make for you know, it's not just one target, it's a lot of targets in some cases, if there are a lot of areas where where companies have activities, and then it can roll up into you know, an overall corporate ambition. And that's just one way of going about it. Other companies are setting replenishment targets, so committing to replenishing the volume of water that they consume, for example, as a way to kind of offset their impact. We're also involved in the Science Based Target network, so following in the footsteps of the Science Based Target initiative for climate, but thinking about how to set targets then for all of nature, including water, and that follows a similar approach to to understanding, you know, what are sustainable thresholds in every basin and calculating targets for companies according to those and their and their footprints. So there's a lot of activity, a lot of excitement, a lot of interest in in setting targets, I would say broadly in the private sector right now.
That's really interesting. A couple of things to follow up on there. So you mentioned, of course, you know that that waters is local as opposed to you know, carbon, which is more global, which is obviously I think key to to the issue. And then you mentioned, of course that targets have to be kind of specific to a given basin. So I think therein lies another key difference between greenhouse gas emission target setting and water setting, right because we can kind of align or at least try to align our carbon targets to a certain degree of warming, which is by and large, you know, global, where is you know, with water it could be based in specific. So again I'm kind of curious to hear ultimately how you kind of measure at a basin level what that threshold should be, or what you ultimately measure a target against.
Yeah, it's it can be challenging depending on data availability. Tools like AQUEDUCT use global hydrologic models, which are good, like I said, at that high level for those high level screening purposes, and they can be used to set targets as well. If you want to think about risk thresholds that you're comfortable with, you could use tools like aqueduct to set targets. That way, you could also pull in more local models and data sets that might have a better handle on what's happening on the ground. Some areas have a lot of great data and models, So a lot of my work in the past has been focused on the Chesapeake Bay here in the United States, and it's very data rich, great watershed model that we can rely on tells us those sustainability thresholds, and in many other areas that doesn't exist, and so you do kind of have to fall back on those global data sets in some cases. And this is something we're trying to move forward through the science based Target Network because we do really want to encourage those local sustainability thresholds to be used. So we're trying to identify where they exist and where they don't. And it's yeah, it is unfortunately often the case that there aren't great local data we can rely on.
That's interesting. Obviously, the lack of data remains a key challenge across esg and I certainly think for assessing water the lack of data is pretty pronounced. You mentioned earlier the idea of ambition, corporate ambition with respective you know, decreasing water use and setting targets. Not to keep drawing parallels to to carbon targets, but perhaps I'll do it one more time. One of the things, of course, that we see when we're looking at carbon targets, and I think with water targets too, is companies often have pretty ambitious targets, but we don't as investors or analysts, necessarily have the tools to understand whether these targets are feasible or whether the plan to achieve the target is feasible. So I just curious to hear your thoughts on that and ultimately, you know how you're assessing kind of the quality or validity of a target.
Yeah, this is another excellent question, Eric. A couple of things to share on this point. We actually run a call the other day with a company and they asked essentially that same question. You know, if if we go and set this target based on what the watersheds need, how do we know that it's even feasible for us to achieve. I think some companies do take a more conservative approach and factoring that achievability factor so they can ensure that what they're committing to is is ultimately something that they can pull off, and others that we work with really stick their necks out and say, we know this is what needs to happen. We're going to commit to doing our part, you know, to achieve these desired conditions, these sustainability goals, and we'll figure out how to make that happen later. But this is what has to happen, and we'll find a way, or at least we'll do our best to find a way. So there are different, you know, levels of tolerance for setting these targets and different levels of ambition, so we see a variety of approaches there. WI has been involved in that accounting picture and developing guidance on how to account for progress toward targets, and so when thinking about volumetric targets, we have guidance on volumetric water benefit accounting, so as projects are invested in that help replenish water, for example, we help provide methodologies for quantifying those benefits and reporting up to the targets. We're working on similar guidance now for water quality with a number of partners, and then we're also expanding upon those quantifications methods to provide some more guidance on that transparency picture in a way, the reporting, How often do you need to make sure those projects are on the ground, What kind of claims can you make about your progress and things like that. So we're doing that together with a number of partners. We've been a number of companies involved as well, so hoping that this will really provide some of that much needed guidance across across the private sector on the accounting and the claims pieces.
Super interesting. Obviously, one of the big kind of focal points in the ISGY space these days is around transparency and disclosure and reporting standards. So just to kind of expand on that, how does your work fit in with some of the kind of global frameworks that are out there, whether it's the work that ISSB is doing for example, or G or I. Are you collaborating coordinating with those groups or are your accounting standards kind of something separate at this point.
Yeah, the accounting standards that I just mentioned are a bit separate. Those are more around accounting against targets. But we certainly are plugged in with ESG reporting. You know, companies use aqueduct for example, to report to CDP, and we're trying to monitor you know, all these other acronyms that are out there for ESG reporting and making sure that our tools and our data and our guidance can continue to be useful.
So maybe I'll just take an opportunity to read another stat from the recent aqueduct report, and this one is equally alarming and leads to my next question. But so, according to your recent research about seventy trillion dollars in GDP, thirty one percent of global GDP will be exposed to high water stress by twenty fifty, up from about fifteen trillion or twenty four percent of global global GDP in twenty ten. So obviously a pretty significant stat, pretty alarming stat with that as the context seems to me that investors are still not really paying attention to water as much as they should. So I want to hear your thoughts on ultimately you know how through your work and others, we can better help the market really understand these risks and ultimately you know how to incorporate these risks into investment decisions.
Yeah, certainly the ESG reporting is helpful as you know a basic understanding of of the risks that companies are exposed to. And you're right, there's there's a lot more action. I think that's needed, a lot of I think understanding that it's hard to get at due to lack of data in some cases and lack of reporting, and I think it's it's fair for investors to start expecting and asking companies to respond to these risks and to be adapting accordingly. We can't continue down this business as usual path. You know, we're already seeing stranded assets and there's all kinds of you know, increasing threats from climate change that's only going to kind of exacerbate this issue. So using tools that are out there from ESG reporting aqueduct to kind of get a handle on as much publicly available data as possible, but also expecting more from companies on disclosure about their activities, their locations, their risks, I think would go a long way.
Absolutely, that makes sense. I think one of the challenges, and curious to hear your thoughts, goes back to something that you mentioned before, which again is the idea that water is local. So the challenge there, you know, versus other environmental issues, whether it be air pollution or or JHG emissions is I think it's it's harder ultimately to kind of put a price on water that is, uh, you know, perhaps applicable kind of across a market, as opposed to you know, greenhouse gas emissions trading markets that we see in various regions, you know, other air pollutant trading markets. Has there ever been kind of any discussions of a global water market, global water taxes, anything like that. Yeah.
Again, it's tricky because water isn't a global issue. Water challenges don't have you know, global reach. There are certainly some geographies that have tried or do you have water markets both for quantity and for quality. I used to be involved more in the water quality markets where we had a similar kind of market as carbon but for nitrogen phosphorus credits. So I mentioned the Chesapeake Bay earlier, and there's a cap there on nutrients for the Chesapeake Bay watershed. So any additional growth, you know, new companies coming into operation in the watershed, all of the nutrient load associated with their activities have to be offset. And so there has been development there for water quality market and similarly in other places for water quantity. But again it is just it's very local and that makes it challenging.
Yeah. Absolutely, Speaking of the local nature, I was reading an interesting article on the water challenges that we face in preparation for this discussion, and one of the terms which which I had not heard before, that was used in the article is this idea of virtual water, which is water that is essentially embedded in other products, whether it be agricultural products, whether it be oil for example. And these things, of course are being traded, you know, globally, moving around various markets, and and you know, based on what I was reading, is it's you know, an overwhelming percentage of water is ultimately kind of virtual water, if you will. So I was wondering if you know, given that, there's any potential for thinking about you know, similar to like a carbon important tax or something like that, where you can try to account for the water used in a product as part of you know, other global trade mechanisms in a way to again try to encourage efficiency and reduction and the ultimate use of this valuable resource.
Yeah, I think that's a really interesting idea. This virtual water concept is is challenging for a number of reasons, and it's something that we're grappling with and thinking about, particularly in areas where this virtual water is originating from water scarce geographies and then being exported to areas that have plentyful water and their equity concerns with that and if you you know, local economies are benefits from these exports, but is it the most equitable approach? So we I don't know that we have solutions right now, but we are thinking about it. And this is one of those you know, I mentioned in the beginning about w I like, we are really trying to tackle these systemic challenges and this is this is a big one that we're continuing to think about and making sure that we're using our water resources appropriately and compensating for it appropriately.
Absolutely, another thing that I was thinking about the other day that wanted to get your thoughts on this. It seems like so many of the solutions to various global problems ultimately kind of contribute to other problems. So to actually explain what I mean, when we think about something like evs or you know, wires necessary to transport electricity, we see increased demand for copper for example, copper's super water intensive two create So how do you kind of address this concept of solutions to one issue ultimately contributing to perhaps you know, more water use In this example, Yeah.
Great example, just before talking to you, I was in a meeting with some other WI colleagues about energy minerals including copper, and how all of us across the institute, who are working in different sectors on different issues, can really come together and try to tackle this. It's a big one and one that we've been in the Water team have been thinking a lot about recently, as we do see this increase in electric vehicles, like you mentioned, more renewable energy. All these things are critical to solve the climate crisis, and there are water ramifications to the mining of these of these important critical minerals, both from a water quantity standpoint and from a water quality standpoint. And we've seen a lot of interest over the past few years from companies and awareness about water risks not just in their direct operations, but across their whole value chain, and so particularly for these companies that rely on these minerals upstream in their supply chain, which could be you know, the automotive sector for the lithium and electric vehicle batteries, renewable energy sector, the tech sector making cell phones you know, also relying on on these minerals for batteries. For example, we need to get a better handle on those impacts and and how to mitigate those through more responsible mining and recycling and you know, the whole range of possibilities. So it's encouraging that we're seeing this interest in understanding risks across the value chain, you know, not just focused on draft operations, but impacts upstream as well. But the data aren't always there too to provide good, good guidance, So it's something that we're keen to explore here in the near future.
Absolutely, that sounds good. So you mentioned the idea of you know, exploring things in the near future. Wanted to maybe close with a question around your plans going forward and kind of where you see wris water work, you know, focus saying over the next year, and ultimately where you might see some uh, some cause for optimism because I think we've had a little bit of a pessimistic conversation here. It's a concerning situation. But maybe we could get your your thoughts on those two things to close.
Yeah, sure, I know these these conversations tend to be a bit depressing, so I'll do my best here. So we're we're seeing just you know, increased complications across these issues based on the interconnectedness, you know, the trade offs like we were just talking about, and then some of these issues only being exacerbated with climate change and economic development. And so we're really striving at w I to take a more holistic approach to these issues. And we have a new strategy that's that's trying to look across all these systemic challenges to and then organize ourselves accordingly internally to try to generate benefits, you know, across multiple areas. And of course to do that, we need a lot more people at the table. And this takes you know, not just ENGOs and companies, but many others. You know, no company, no sector is going to solve any of these problems. We need government as well involved. We need civil society, you know, we need everyone at the table to engage on these issues, to agree on a common vision and how to get there, and everyone involved in in making that happen. So that then, given the nature of water requires more kind of place based work. We got to bring everyone to the table, you know, in all these areas where where we're seeing significant water risks. So wi IS is when I first started fourteen years ago, we just had an office in DC, and we now have offices all over the world. We are deepening our engagement in focused countries to really target those high priority areas and really try to increase our impact on the ground. So we've been making this transition over many years from my perspective as being a very research focused think tank to more of a do tank because we recognize that it's going to take more than research to solve these problems. So I'm encouraged by where we're headed, and I'm seeing not just from within WI but externally a lot more focus on collective action and how we bring everyone together. And this is and maybe this is just because I'm from where I said, I work with the private sector, but you know they are in many cases the ones pushing it. They realize they're not going to solve it alone. They want governments involved, and so I'm hopeful that we may start to see some more collaboration and collective action to solve these very challenging systemic problems.
Absolutely, very interesting. Thank you. I really liked the idea of transforming from a research think tank to a do tank. I like it a lot. So I just wanted to remind our listeners we were joined today by Sarah Walker, who's the director of Corporate Water Engagement in the Water Program at the World of Resources Institute. Sarah, thank you so much for joining us today.
Thank you Eric, thanks for having me.
So. You can find more information on ESG data reporting all things water by going to the Environmental tab on the ESG team dashboard, bispace ESG go on the Bloomberg terminal. If you have an ESG quandary, your burning question you would like to ask bi's expert analysts, send us an email at ESG Currents at Bloomberg dot net. Thank you again for listening, and we'll speak to you next time.