British International Investments: WWF Water Risk Filter

Provide a short overview of the research innovation being proposed for the award, including how it is innovative.

To increase investors’ and companies’ ability to adapt to, and become more resilient to, climate change shocks and stresses, BII partnered with WWF to enhance the Water Risk Filter (WRF) tool – a leading online tool for assessing and responding to water-related risk across companies’ operations and supply chains, as well as investors’ portfolios. This helped enhance the tool’s functionality to enable companies and investors to assess water-related financial risks under various climate change scenarios and temperature pathways. Climate scenario analysis is a key recommendation of the Task Force on Climate-Related Financial Disclosures (TCFD).

Launched in November 2021, the upgraded WWF WRF version 6.0 enables users to perform scenario analysis of water-related risks to inform long-term business strategies and investment decisions for building climate resilience. Incorporating forward-looking water risk considerations into business strategies and investment decisions is critical to understand the “why and how” of investing in climate resilience.

Along with a new-look website, important upgrades include:

• unique climate and socioeconomic-based scenarios to assess future water risks;
• new higher-resolution global data sets; and
• an improved interface to manage user data and visualise risk assessment results.

WWF also plans to integrate Water And ValuE (WAVE) assessment functionality.

Provide a description of why you decided to undertake this approach.

We undertook this approach to:

1. Mobilise greater awareness, reporting, and action amongst investors and companies on water risks, especially in our markets.
2. Enhance the WRF to enable companies and investors to assess water-related risks under various climate change scenarios. This will help them incorporate climate-resilient thinking into their strategies and investment decision making as recommended by the TCFD.
3. More centrally position the WRF as a tool for investors in emerging markets looking to understand water-related climate risk, and to help them understand the opportunity from a capital mobilisation perspective.
4. Strengthen our client engagement on water risks for climate resilience and set the stage for further collaboration within key markets to create more climate-resilient outcomes.
5. Help finance resilience and climate adaptation in our markets via our growing portfolio of Private Equity Fund Managers and Financial Institutions.
6. Set the stage for further collaboration within key markets to create more climate-resilient outcomes.
7. Identify and invest in solutions to address water risks, e.g., water-efficient technologies, solar-powered drip irrigation systems, water monitoring and analytics, and various nature-based solutions.

The tool helps users attain COP27 goals by:

• Increasing awareness and knowledge about climate-related water risks and capabilities and managing risks through investment in climate adaptation and resilience-building measures.
• Increasing accessibility to support the incorporation of climate-related water risks and opportunities into business strategies and investment decision-making processes with foresight.
• Mobilising the private sector to share experiences and lessons, as well as to collaborate to scale investments for solutions that create a water-secure and climate-resilient future.

Provide an outline as to:

1. The value this approach has provided or a summary of the key conclusions.
2. What you have learned from this approach or report that can be applied more broadly.

The WRF is a practical tool that guides corporates and investors along their water stewardship journeys, from performing a water risk assessment to identifying actions to address water risks. With the integration of new climate and socioeconomic pathway-based scenarios, it now enables forward-looking risk assessment that can help users evaluate and inform long-term resilience planning and strategy.

Through our partnership, we collected data from direct and indirect investee companies, including site location, water withdrawal, sector, and water use. We also conducted a survey of our Fund Managers’ understanding of climate change and how managers are considering climate risks in their investment processes.

Highlights of these initial assessments:

1. WRF is a powerful portfolio-level screening tool to help identify and prioritise where to focus efforts and investments to mitigate and adapt to water risk in the face of climate change.
2. Climate change will exacerbate water risk; scenario analysis is a powerful approach to identify future risks and opportunities.
3. From our portfolio analysis, we were able to identify sites that were facing medium to very high physical water risk.
4. Notably from analysis of how physical risks will change by 2030, there will be risk increase across all four physical risk categories under all three scenario pathways. However, water quality will be the key driver of risk change for our portfolio. Therefore, identifying contextually appropriate solutions and measures to address water pollution will be critical for building resilience across BII’s portfolio.
5. Water-quality risk could mean disruption in production or higher operating costs as companies purify water prior to their operations. Water pollution can also lead to health issues, affecting companies’ workforce and consumers.
6. We were able to assess climate risks and financial exposure across a subset of our portfolio. In order to quantify the risks, we combined investee-level risk (location), water dependency (operational risk), and BII’s financial exposure information. The result was a comprehensive understanding of risk and financial exposure that can inform planning on where to focus mitigation and adaptation measures.

We also engaged in numerous capacity-building and awareness raising activities, including:

• May 2021 – CDC and WWF publicly announced their partnership to drive private sector action on climate water risks using WWF Water Risk Filter 6.0 (WWF). CDC Group announces partnership with WWF and Climate-KIC (CDC).
• August 2021 – Presentation at the World Water Week: “Financial sector: Building resilience with WWF Water Risk Filter Scenarios.”
• November 2021 – Blog post “Helping businesses build climate resilience with the enhanced WWF Water Risk Filter 6.0”.
• November 2021 – WWF’s launch announcement: Upgraded WWF Water Risk Filter 6.0 will help companies and investors to tackle worsening water risks in a changing climate.
• December 2021 – WWF and CDC Group co-organised a presentation of key enhancements: “WWF Water Risk Filter 6.0”.
• February 2022 – CDC Group and WWF podcast on managing water risks.
• April 2022 – Participated in the development and dissemination of K4D’s briefing pack for FCDO: “Groundwater: Making the Invisible Visible - K4D Briefing Pack” (ids.ac.uk).
• May 2022 – Presented at the Alliance for Water Stewardship in Edinburgh.

In summary, with high uncertainty in the face of climate change, TCFD recommends that companies and investors use scenario analysis to incorporate the potential effects of climate change into their planning processes and strategies. Our partnership enabled WWF to develop a tool that is tangible and accessible, and enabled companies and investors to comprehensively incorporate water risks into TCFD-aligned climate scenario analyses, resulting in forward-looking integration into climate resilience planning.