New Tool Incorporates Water Risk in Equity Valuation Process

Publication date

New York, Geneva, Oxford, 16 September 2015

Water availability is increasingly recognised as a material risk for many businesses. Water shortages have already shown to significantly impact the performance of companies operating in water-stressed regions[1]. With competition for water expected to increase as a result of population growth, demographic trends and climate change, investors are increasingly seeking a better understanding of the strategic, operating and financial implications of water risk in their portfolios[2].

A new Water Risk Valuation Tool released today by Bloomberg LP and the Natural Capital Declaration enables analysts to incorporate water risks into company valuations across copper and gold mining companies. The new excel-based tool is fully available for Bloomberg Professional service subscribers using Bloomberg API data, but both the tool framework and white paper can be requested and accessed at www.bloomberg.com/bcause by the general public. An open-source version will eventually be made accessible on the Natural Capital Declaration website, where users without access to the Bloomberg terminal can either enter in operational and financial data manually, or test the tool’s functionality and methodology using pre-populated example data.

The methodology developed combines operational data with science-based scarcity projections and allows users to customize inputs within a discounted cash flow valuation model. The customizable tool provides a quantitative approach to evaluate how water risk factors can be incorporated into company valuations using a DCF model. The adjustable water stranding scenario setup directly links water risk to revenue, while an optional social cost of water (“total economic value” or shadow price) can be accounted for in operating expenses.

Liesel van Ast, Programme Manager, Natural Capital Declaration says “Water resources are an essential input in mining operations and given the long lifespan of these assets, it is critical for investors to understand which companies have significant assets at sites that could become stranded due to growing water stress. The WRVT provides a practical and flexible model to integrate information on resource constraints into financial analysis.”

The new tool builds on Bloomberg’s Carbon Risk Valuation Tool and maps specific mine asset locations and production volumes against water stress indicators provided by the World Resources Institutes (WRI) Aqueduct water database.

Su Gao, WRVT project manager and Senior ESG Analyst at Bloomberg LP, notes that “the tool is powerful in that it does not require the user to have any specific expertise or additional datasets – it is “plug and play” with the Bloomberg terminal to help users conduct research in an easy, cost effective way while retaining a detailed profile of the valuation impacts due to water risk factors.”

The new Water Risk Valuation Tool (WRVT) was developed through a joint initiative between Bloomberg LP and the Natural Capital Declaration (co-convened by the Global Canopy Programme and the UNEP Finance Initiative), with support from Bloomberg Philanthropies and the GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit).

[1] http://www.bloomberg.com/news/articles/2015-03-10/wines-to-mines-imperi…

[2] http://www.ceres.org/resources/reports/an-investor-handbook-for-water-i…

ENDS

 

For further information or to arrange interviews, please contact:

Natural Capital Declaration

Rachel Mountain, Head of Communications, Global Canopy Programme r.mountain@globalcanopy.org, +44 (0)1865 724 333

Robert Bartram, Communications officer, UNEP FI, Robert.bartram@unep.org , +41 22 917 8934

Bloomberg

Michael Marinello, Head of Global Communications, Innovation, Technology and Sustainability

Tel: +1 212-318-2000

 

Notes to editors

1) About the Natural Capital Declaration

The Natural Capital Declaration (NCD) is a global finance-led initiative to integrate natural capital considerations into financial products and services, and to work towards their inclusion in financial accounting, disclosure and reporting. It is signed by the CEOs of 40 financial institutions, which are actively working with supporting (non-financial) organisations to develop methods to implement the four commitments in the Declaration. This is being done through a steering committee of signatories and supporters and four working groups, supported by a secretariat formed of the UNEP Finance Initiative and the Global Canopy Programme (GCP). The NCD is developing a range of tools to facilitate integration of natural capital factors into financial products and services and strengthen management of natural resource and environment-related risks and opportunities.

For more information visit www.naturalcapitaldeclaration.org

2) About UNEP Finance Initiative

The United Nations Environment Programme Finance Initiative (UNEP FI) is a unique partnership between UNEP and a global network of over 200 banks, insurers and investors from 51 countries. UNEP FI aims at creating an enabling environment for financial institutions to embed sustainable development policies into their operations, and its mission is to mainstream the integration of sustainability across the finance sector. It provides a neutral space to convene stakeholders and acts as a platform at the intersection between finance, science and policy.

Visit www.unepfi.org

3) About the Global Canopy Programme

The Global Canopy Programme (GCP) is a tropical forest think-tank and international NGO, working to demonstrate the scientific, political and business case for safeguarding forests as natural capital that underpins water, food, energy, health and climate security for all. 

www.globalcanopy.org

4) About Bloomberg

Bloomberg, the global business and financial information and news leader, gives influential decision makers a critical edge by connecting them to a dynamic network of information, people and ideas. The company’s strength – delivering data, news and analytics through innovative technology, quickly and accurately – is at the core of the Bloomberg Professional service, which provides real time financial information to more than 325,000 subscribers globally.

For more information, visit www.bloomberg.com/company.