Why worry about water?
As pressure mounts on the world's freshwater resources, water-related risks to business are intensifying. Increasing competition for freshwater resources and supply limitations pose potentially significant financial risks to businesses and to investment portfolios.
Examples of Water Risk:
The Queensland floods affected more than 70 towns and 200,000 people, ultimately leading to three-quarters of the state being declared a disaster zone. The impacts to the Australian economy included a loss of A$32 billion (equivalent to 3% of GDP) and a reconstruction budget of A$6.8 billion. Australian companies Virgin Blue and Bank of Queensland issued profit warnings directly attributed to the flooding — their share prices dropped 5.9% and 4.9%, respectively.
Over the past two years, China has experienced two prolonged dry spells and frequent flooding. In 2010, droughts and floods together cost the country roughly US$22.5 billion. In June 2011, flooding in eastern and southern China killed 175 people and displaced 1.6 million, resulting in more than US$5 billion in damages and a 20% reduction in vegetable output. Meanwhile, five million hectares of farmland in western China suffered the worst drought in 50 years.
In October, a retaining wall of the tailings pond dam at the Ajka alumina plant burst releasing an estimated 700,000 m3 of liquid waste. The disaster affected 15 square miles, killed 10 people, and injured 150. All life in local reaches of the Marcal River was extinguished and the Hungarian government has since spent US$166 million on cleanup and reconstruction. The Marcal’s link to the Danube river system meant that six other countries had to develop emergency response plans. In September 2011, the company was fined more than US$636 million.
Residents in the Mississippi and Missouri River watersheds grappled with flooding so severe that it led the Army Corps of Engineers to implement strategic levee breaches designed to flood smaller cities in hopes of protecting more densely populated areas. This understandably controversial option had not been employed in a century. Estimated economic losses due to the flooding were US$2-4 billion.
In the summer of 2011, Texas and Oklahoma suffered the worst drought conditions seen since the Dust Bowl. In Midland, the oil and gas capital of West Texas, less than 1/10th of an inch of rain fell between October 2010 and April 2011, leaving all three of the city’s reservoirs less than 30% full. Without rain, residents may have to raise US$140 million for a new pipeline to bring in water from elsewhere. Estimates put the cost of the drought and associated wildfires (including agricultural and livestock losses) at US$5 billion.