Impax and AP7 partner for water impact report

Impax Asset Management (Impax), the specialist asset manager investing in the transition to a more sustainable global economy, has partnered with Swedish public pension fund, Sjunde AP-fonden (AP7), to produce a report that investigates how best to assess, measure and report on water impact.

The report, ‘Water: from a systemic and unpriced risk to a measurable opportunity with positive impact’ provides an investment practitioner’s perspective on water as a sustainability and impact topic. The report focuses on the solutions to the sustainability problems associated with water supply and treatment, on effective water impact measurement, and provides practical learnings, case studies and recommendations. 

Water is vital to virtually every business in the world and to all sectors of the economy. Yet ensuring the resilient and sustainable supply of water is also a systemic and unpriced global challenge with significant economic and societal risks. The report highlights how water is too often overlooked in sustainability and risk assessments, and water data reporting is well behind climate reporting in terms of the amount and quality of disclosure. 

The report highlights the complexity and ambiguity of current water reporting, with few globally agreed frameworks to measure water impact. The report recommends moving to common water impact indicators so that water impacts can be compared and aggregated across different investments and assessed at portfolio level. 

To get a full, decision-useful picture of water impact, Impax and AP7 recommend considering three different elements – water withdrawals; positive water solutions; and local water circumstances. The report finds that none of the open-source frameworks include all three of these elements and there is a lack of comparability in the data that does exist. 

To help remedy this, Impax and AP7 have developed a “Water impact metric dashboard”; this provides a closer assessment of the most relevant water impact metrics which are considered for their primary use and characteristics such as data availability, decision-usefulness and complexity. 

Many existing frameworks focus mainly on water quantity and do not put sufficient focus on water quality and pollution. Therefore, the report recommends, investors must engage with companies and standard setters to improve reporting by companies. The report outlines a roadmap for improving investor dialogue and finds that, of existing water impact data today, decision-useful information is scarce and is not easily available to investors. 

As demonstrated by case studies throughout the report, the most advanced water companies today develop site-level stewardship with other water users in a local watershed, collaborating on water savings, pollution control and even regenerative practices.  

The report concludes that company boards and executive management must treat water as a strategic issue. Investors can play a key role in funding solutions to water problems, as well as providing stewardship for effective water management.  

Lisa Beauvilain, Head of Sustainability and ESG, Impax Asset Management, says: “Currently, water impact reporting practices often fall short. By effectively measuring and reporting water impact, investors would gain useful information on water risks and understand better the positive impact of water solution providers. As our report uncovered, water data are not widely available, particularly information on local hydrological conditions and on the impact of water quality. This needs to change rapidly, as chemical water pollution in particular is becoming better understood and the magnitude of the challenges is becoming clearer and regulators’ focus on this area increases. 

“We believe investors can have significant positive impact in a number of ways – by investing in water solutions, engaging with companies and reporting framework organisations, through policy advocacy with regulators and policymakers, as well as through rigorous water impact measurement and reporting.”  

Johan Florén, Head of ESG, AP7, adds: “Climate change, access to water and loss of biodiversity have become existential threats and politicians have been forced to collaborate on a global scale. But the financial sector and businesses must also contribute if we are to have a chance of success. 

“At present, knowledge of the effects of investment decisions on the real economy is insufficient. Transparent reporting of real effects is a first step for investors to be able to evaluate the societal impact of their investments and better understand corporate governance considerations.  

“We have teamed up with Impax to investigate what impact portfolio companies have on water availability, and how we as investors could support increased transparency and improved water stewardship. Sustainable development requires reliable and continuous access to clean fresh water. From an impact perspective, water availability is very much linked to the local context.”  

Impax and AP7 believe further analysis and work are required in the following areas: