Strictly speaking, water does not just disappear. Losses, if any, are only relevant across geological periods. Despite this elementary physical principle, it does make a difference how water is withdrawn from its natural cycle and used. While water may not perish on a global scale, freshwater or drinking water springs do.
Therefore, Erste Asset Management decided to take a symbolic stand in this field by publishing the water footprint of its sustainable equity funds. This is also why we and our partners are using this Investment Board to convince companies to use water responsibly.
First step: the water footprint
The establishment of the water footprint is the first important step. “Whatever can be measured, can also be administered,” as an often-used proverb goes. Given the rising pressure from investors such as Erste AM, the responsible use of water is also becoming more important – beyond the realm of pure risk management. The positive and negative selection by fund managers geared towards the reduction of the water footprint and the implied water risk of their investments increase said pressure further. This is also what our Research partners have confirmed to us. According to the representative survey carried out by our partners, almost a third of all companies regard water as a core issue of their sustainability strategy nowadays. This means an important first step has been taken.
Local solutions are necessary
In many cases, one single tool is not enough to create tangible change. In contrast to the greenhouse gases, where every ton of CO2 emitted or saved affects the world equally across the planet, water (shortages) are a local problem. The relevant unit in this context is every single, regionally delimited water catchment area, even if water is globally scarce. Therefore, cultivating fruit in the Tyrolean mountains is uncritical, whereas in the dry regions of California or Southern Spain it is problematic from the point of view of sustainability. Power plants that can resort to sea water for cooling will not require downtimes due to dry periods, whereas those that require the entire capacity of a small river will do so.
In our talks, the local component turned out to be the most important factor for finding sustainable solutions for water and for allocating capital to the right places. The ERSTE RESPONSIBLE funds contribute to this within the framework of the ESG analysis, which among other things establishes to what extent a company operates in risky areas with scarce water supply and how much it depends on high water consumption. At the same time, the analysis takes into account what measures are taken locally to improve the sustainable use of water. Our water footprint also allows for this by stating the dependence of such high-risk regions of/for companies in our funds.
The path to avoiding future water crises is an arduous one – our partners agree – but the first important steps have just been taken.