Beyond the utility bill, into the boardroom: The business case for investing in water resilience

Business leaders must no longer view water as merely a utility bill, but as a strategic asset integral to their companies' balance sheets, according to panelists at the Sustainability Impact Dialogue. The dialogue, organized by The Business Times and UOB, focused on building climate and business resilience through water. As climate disruptions intensify, water risks could cost the global economy upwards of US$1.3 trillion between 2025 and 2030, with manufacturing, distribution, fast-moving consumer goods, retail, banking, insurance, and energy sectors facing significant losses by 2050.

Graeme Riddell, managing director at Marsh Risk, emphasizes that water risk has historically been an afterthought for company boards and senior management until a major disruption occurs. They advise businesses to adopt proactive measures, rather than reacting to crises. However, a substantial funding gap exists to address water infrastructure needs, with an estimated US$4 trillion required for Asia and the Pacific region from 2025 to 2040, yet only a fraction of that amount is currently being invested.

In South-east Asia, an annual investment of around US$26.6 billion is needed but has only seen 40% of the required funding, with only 2% coming from the private sector. This reliance on regional governments for funding and regulatory frameworks remains a challenge. Moreover, building internal capabilities to price water risks and develop appropriate projects poses hurdles.

While companies increasingly recognize the need to incorporate water-related targets into performance indicators, measuring and pricing these risks accurately remains a complex task.

Riddell suggests that businesses should explore blended finance options, such as collaborating with philanthropic funds and multilateral development banks, or consider long-term green bond issuances to overcome bankability challenges. Building a bankable water project requires aligning five key traits: scalability, growth potential, revenue assurance, counterparty risk, and effective risk allocation.

Addressing water hazards through insurance is essential, but not all risks fit neatly into traditional insurance models. Insurance typically covers sudden-onset events like floods, while chronic water stress and droughts may not result in clear physical losses. Contingent business interruption insurance can help address some of these risks, but insurers may struggle to assess and manage risks that are not directly observable along the supply chain.

Ultimately, the key lies in identifying and structuring solutions that effectively transfer water-related risks to insurers while ensuring the feasibility and sustainability of such projects.