Water availability is increasingly recognized as a material risk for many businesses. To address this, Bloomberg and the Natural Capital Declaration have launched a tool that enables analysts to incorporate water risks into company valuations across the mining sector.
The Natural Capital Declaration is a global finance-led initiative supported by the CEOs of 40 financial institutions to integrate natural capital considerations into financial products and services.
The Water Risk Valuation Tool is a practical, high-level demonstration tool that illustrates how water risk can be incorporated into company valuation models. With a focus on gold and copper mining companies, the tool models potential asset stranding based on conditions of future physical water scarcity, and estimates the effects of this water risk factor on earnings and share price.
Water shortages have already shown to significantly affect the performance of companies operating in water-stressed regions. With competition for water expected to increase as a result of population growth, demographic trends and climate change, investors are increasingly seeking a better understanding of the strategic, operating and financial implications of water risk in their portfolios.