The US$95 trillion-backed FAIRR investor network is today publishing research from a new investor tool revealing the agrifood sector is significantly underestimating the financial risks posed by water insecurity. The research is published as the global agrifood industry reels from the impacts of extreme weather – from drought pressures on US cattle hiking beef prices to a 70-year high, to the “flash drought” drying up European river systems.
The report, The Hidden Costs of Water Scarcity in Livestock Companies, examines the impacts of chronic water stress and drought on 18 of the world’s largest publicly listed livestock companies, representing a 20% share of the global livestock market with revenues totalling US$354 billion. The report findings are from the FAIRR Water Risk Monitor, the first tool of its kind to model scenario-based water scarcity risks at a company level.
The research finds that just 18 companies collectively withdraw as much freshwater annually as Brazil or Egypt. Despite their high dependence on water, the companies disclose 1% of value chain blue water use – referring to freshwater in surface or groundwater sources – with five out of 18 companies providing no information on water use at all. Even among companies that disclose blue water use, actual value chain water exposure is on average 132 times higher than reported.
FAIRR estimates the 18 largest listed livestock companies face US$6.4 billion in annual hidden costs from chronic water stress today, equivalent to 2% of revenue on average. These costs include access to alternative water sources, procurement costs for feed inputs and livestock supply, among others. Costs could rise to US$9 billion annually by 2050 under the most pessimistic water stress scenario. A one-in-ten-year drought could drive up to US$17 billion in combined losses by 2050.
Chinese companies are currently most exposed to water scarcity risks, with WH Group and Muyuan Foods facing costs of up to 8% of revenue. Brazilian companies are exposed to the greatest drought-related losses, with JBS facing up to US$4 billion losses in a severe 2050 drought scenario.
Patricia Calderon, Climate and Nature Economist, FAIRR, said:
“Despite the severity of water scarcity, there are large disclosure gaps on company exposure to water risks. Investors need decision-useful data on how water risks affect their portfolios today and in the future.”
“Our report quantifies the financial costs of water risks, and the opportunities to mitigate these, so that agrifood companies and their investors can begin to factor water into investments, risk pricing and future planning.”
The report analyses the opportunities and limitations of water resilience technologies – such as drip irrigation and water recycling. If implemented today, these technologies could generate between US$14 billion and US$20 billion in cumulative savings by 2050. But, once implementation costs are considered, technologies would reduce only 9% of chronic water-stress costs.
To reduce the financial shock created by hidden water costs, nature-based solutions are needed to improve water retention in landscapes; governance levers, such as subsidy reform, are needed to provide investment for water resilience, and financial regulation is required to better integrate the costs and value of water into financial decision-making.