Introduction

Investors should expect water risk to intensify as the impacts of climate change become more prominent and demand grows for freshwater, driven by population and income growth. The result is higher demand for food, energy and water, all of which need stable water supplies. Competition for water will increase in the many areas already facing water scarcity.

The sixth of the 17 Sustainable Development Goals (SDGs) addresses water and access to water, which is a human right. The Financial Stability Board’s Task Force on Climaterelated Financial Disclosures (FSB TCFD) has also issued recommendations for financial companies to disclose climate-related risk exposure, including exposure to water stress. Financial institutions will be required to disclose and mitigate climate-related risks in the coming years – many of which are water-related.

Companies with direct operations and supply chains that are dependent on agriculture, the world’s largest user of water, are exposed to water risks. Those companies that appropriately mitigate these risks and demonstrate good water stewardship characteristics will create value for their shareholders.

Based on lessons learned from a two-year PRI-coordinated collaborative engagement, and building on expert input from institutional investors and WWF, this document:

• outlines investor exposure to water risk in agricultural supply chains;
• discusses why investors should engage on the topic and some of the challenges that they may face during the process;
• provides a framework for investors to engage with companies on managing water risk in agricultural supply chains;
• suggests engagement questions to help investors understand and mitigate water risk in agricultural supply chains; and
• highlights how some investors are integrating water data into their financial analysis.