Water risks under-recognised in climate debate: Axa XL

Water-related risks are underestimated despite being a fundamental component of adapting to climate change, Axa XL says in a report providing insights into challenges that could pose a risk to business continuity.

The global report looks at physical, reputational and regulatory water-related risks and impacts across food beverage and agriculture, apparel and textiles, utilities, manufacturing, technology and electronic equipment, healthcare and pharmaceuticals and transport and logistics.

“While some businesses may already be planning for physical water risks, reputational and regulatory water risks are less widely considered, but can have just as significant an impact on business operations,” the report says.

Reputational risks include negative media coverage and public scrutiny, changes in consumer loyalty, loss of market share due to litigation and damage to brand.

“A company’s reputation on environmental, social and governance (ESG) issues is increasingly important to investors, employees, NGOs and customers,” it says.

Regulatory risks stem from changes that can lead to an increase in business operation costs, including from higher water prices, compliance and statutory water withdrawal limits. For heavy users, competitive advantage could be undermined by cost inflation driven by water scarcity.

Physical risks relate to water scarcity, climate change threats to ecosystems, poor water and pollution, flooding and inadequate management of water resources.

“Not only does climate change create uncertainly over future climate conditions, but damage to ecosystems also has a significant impact on the availability of raw materials,” the report says.

Water scarcity can disrupt supply chains, increase the cost of raw materials, impact staff health and safety and, in the worst cases, halt business operations.

In the case of flood, the report says that despite the threat’s prevalence, particularly in Europe and Asia, businesses have been slow to implement resilience plans. Climate change is also increasing the frequency and intensity of floods.

“Businesses should be looking to bolster flood resilience strategies by investing in flood protection for properties and assets, developing flood risk contingency plans and accessing parametric insurance solutions,” it says.