ISS ESG provides a rating to measure the threat of the water crisis
Institutional investors concerned about water-related risks in their portfolios now have a way to measure it, thanks to a risk rating launched by ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc.
ISS ESG experts warn of a looming water crisis in investment portfolios, as freshwater resources come under increasing pressure from population growth, climate change and unsustainable production and consumption patterns.
The ISS ESG Water Risk Rating has been designed to help investors identify freshwater risk and assess a company’s exposure to and management of that risk.
The risk rating will initially cover 7,400 companies worldwide. A March analysis by ISS ESG found that a quarter of these companies fall into a high-risk exposure category when industry, supply chains and geographic activities are combined.
In addition to humanitarian and environmental impacts, there is “economic risk with implications for the business community and its investors,” according to an ISS ESG article on its website.
Economic risk is divided into two main categories: physical risks related to the place of activity of companies or their suppliers; and business risks if a company’s activities could harm the environment and impact communities’ access to water, said ISS ESG, which launched the rating on March 22.
Potential financial risks include reduced business revenue, increased operating costs, or deterioration in the long-term viability of the business. There is also a reputational risk if water-related impacts are not managed.
“Understanding and identifying companies based on these risks can therefore be a powerful resource for portfolio allocation,” ISS ESG said in the post.