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Corporate Bonds Water Credit Risk Tool

Corporate Bonds Water Credit Risk Tool

Upload time:2021 - Nov

 This tool for financial institutions to incorporate water risk in corporate bond credit risk analysis allows users to integrate water stress into company credit analysis. Developed through a partnership between the Natural Capital Declaration (NCD), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the German Association for Environment and Sustainability in Financial Institutions (VfU), and translated by SynTao Green Finance into Chinese, it contains analysis of 24 companies in the beverages, mining and power sector, and allows users to add their own companies and analysis.

 Ms. Liesel van Ast, Programme Manager of NCD, launched the Chinese summary report of the Corporate Bonds Water Credit Risk Tool “Integrating Water Stress into Corporate Bond Credit Analysis”. She stated that the current water price could not reflect the value of water in demand-supply conditions of different countries and locations. If a shadow price, including the benefits for agriculture, domestic supply, human health and environmental services, is counted in, the value of water would be much higher, especially in the areas of high water risk exposure. 

 Demand for analytics to integrate water risk factors into investment analytics is growing in response to evidence that water crises are a significant economic risk, as highlighted in the World Economic Forum 2015 Global Risks Report. Greater unpredictability in precipitation as a result of climate change combined with a growing population could lead to a 40% gap between water supply and demand worldwide within 15 years. Increasingly, companies are finding it challenging to access sufficient quantities of water for critical business operations, especially in water-stressed regions. The costs of securing water inputs are already rising for water-intensive companies in locations vulnerable to water shortages. Since 2011 companies have spent more than $84 billion worldwide on conserving, managing and obtaining water.

 The Corporate Bonds Water Credit Risk Tool enables users to integrate financial risk exposure to water scarcity into standard financial models used to assess the credit strengths of corporates across water-intensive sectors including power utilities, beverages and mining. The tool addresses an information gap in traditional financial analysis. It enables analysts to identify companies that depend heavily on access to water in locations that are exposed to water stress and to quantify the potential impact of water scarcity on the company’s creditworthiness. By combining data on the quantity of corporate water use per production location with data on site-specific water supply and demand conditions, the tool allows financial analysts to quantify corporate exposure to water stress and its potential impact on a company’s credit ratios. The Excel-based tool provides investors with a systematic and practical approach to assess water risk in corporate bonds and benchmark companies against sector peers, taking account of projected changes in water availability to 2040.

 The Excel-based tools are free to download, allowing financial analysis and other users to test the methodology with their own assumptions and add new company analysis to the framework.


 Please click here for the full version of the tool.

 Please click here for the Chinese summary report.