There’s an interesting new whitepaper up on a tool put together by some people at Bloomberg and UNEP’s Natural Capital Declaration. This follows on from a similar approach to the valuation of carbon risk done in 2013.
Water is a critical natural capital factor that underpins many industrial processes. Water scarcity is therefore emerging as a potentially material risk for business, particularly for companies that operate in water stressed regions and water intensive industries such as mining.
The most recent Ernst & Young ranking (in 2014) of the top 10 business risks facing the mining and metals industry included – for the first time – “access to water,” explaining that the availability of affordable water is “an essential part of operations…and has become increasingly difficult.” 2 With competition for water expected to increase and the long lifespan of a typical mine, there is a strong case for systematically factoring water risks into the market valuation of mining companies.
Along with growing recognition of the potential material impacts of water scarcity, the increasing availability of geospatial data makes it feasible to model out possible effects of water risk on revenues and/or costs. The Water Risk Valuation Tool (WRVT) was developed to address the often missing link between corporate environmental risk and financial value. The WRVT is the product of a collaboration between Bloomberg LP and the Natural Capital Declaration (a finance-led initiative managed by the UNEP Finance Initiative and Global Canopy Programme), with support from Bloomberg Philanthropies and the GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit). The WRVT is a practical, high-level demonstration tool that illustrates how water risk can be incorporated into company valuation in the mining sector using familiar financial modelling techniques. The methodology can also be adapted to other relevant sectors and refined to eventually support the creation of plug-and-play tools for market participants.