New Tool for Corporate Bond Credit Analysis Reveals Significant Water Scarcity Risk

Publication date

Frankfurt, Geneva, Oxford, 8 September 2015

A new tool for financial institutions to incorporate water risk in corporate bond credit risk analysis, unveiled today, shows that several beverages, mining and power companies are significantly exposed to water stress.

Demand for analytics to integrate water risk factors into investment analytics is growing in response to evidence that water crises are a significant economic risk, as highlighted in the World Economic Forum 2015 Global Risks Report.[1]  Greater unpredictability in precipitation as a result of climate change combined with a growing population could lead to a 40% gap between water supply and demand worldwide within 15 years.[2]  Increasingly, companies are finding it challenging to access sufficient quantities of water for critical business operations, especially in water-stressed regions. The costs of securing water inputs are already rising for water-intensive companies in locations vulnerable to water shortages. Since 2011 companies have spent more than $84bn worldwide on conserving, managing and obtaining water.[3]

Seven financial institutions from Europe and the Americas - UBS, Robeco, Calvert Investments, Pax World, J Safra Sarasin, Banorte and Bancolombia – took part in the tool’s development through a partnership between the Natural Capital Declaration (NCD), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the German Association for Environment and Sustainability in Financial Institutions (VfU).

The GIZ/NCD/VfU “Corporate Bonds Water Credit Risk Tool” enables users to integrate financial risk exposure to water scarcity into standard financial models used to assess the credit strengths of corporates across water-intensive sectors including power utilities, beverages and mining. [4] The tool addresses an information gap in traditional financial analysis. It enables analysts to identify companies that depend heavily on access to water in locations that are exposed to water stress and to quantify the potential impact of water scarcity on the company’s creditworthiness. By combining data on the quantity of corporate water use per production location with data on site-specific water supply and demand conditions, the tool allows financial analysts to quantify corporate exposure to water stress and its potential impact on a company’s credit ratios. The Excel-based tool provides investors with a systematic and practical approach to assess water risk in corporate bonds and benchmark companies against sector peers, taking account of projected changes in water availability to 2040.  

Simone Dettling, who manages the Emerging Markets Dialogue on Green Finance at GIZ, states: “Water scarcity and droughts are already affecting companies across the world - from California to Sao Paulo and Chile, from South Africa to India and China. For corporate bond markets, this means that uncertain water supplies can directly affect the credit risk of corporate issuers, especially in the mining, power and food and beverage sector.”

Henrik Ohlsen, Managing Director, VfU, states: “Investors need to understand how water-intensive companies compare on exposure to water scarcity, which can damage brands and credit risk. The tool can be applied to inform company rating processes.”

Eric Usher, acting Head of UNEP Finance Initiative, said: “Access to and availability of water is a global challenge with local implications for achieving sustainable development. The finance sector needs to be alert to this and integrate water scarcity into their analysis using tools such as this newly developed Corporate Bonds Water Credit Risk Tool.”

Liesel van Ast, Programme Manager, Natural Capital Declaration states: “The Corporate Bonds Water Credit Risk Tool is an open-source model to add a water risk factor in credit assessment. It has the functionality to include water stress information in established financial models.”

A report released alongside the tool entitled “Integrating Water Stress into Corporate Bond Credit Analysis: Benchmarking Companies in Three Sectors” - highlights key findings from its application. These include:

  • Exposure to water scarcity varies significantly within sectors, depending on water use in water-stressed locations, combined with sensitivity to changes in key financial ratios.
  • In the beverages sector Femsa, the Mexican bottling company, is most exposed to water scarcity of the eight beverages companies analysed. Its Net Debt/EBITDA ratio would more than triple if it had to internalize the full costs of its water use.
  • Of the eight mining firms analysed, Barrick Gold and Vedanta are most exposed. Barrick Gold could would see its Net Debt/EBITDA ratio rise by 20% to 3.30x in 2017 if current water shadow costs are internalised.
  • Of the power companies analysed, Eskom, the South African utility, is most exposed to water stress and could see its financial position deteriorate drastically through operating restrictions or higher capital expenditure due to water shortages.
  • Sempra, RWE and The Southern Company also have power plants that are exposed to water stress, and could face shut downs or operate at lower capacity in water-stressed areas.  Sempra, RWE and The Southern Company see their leverage rise quite sharply, when they internalise the full cost of their water use. Sempra Energy could see its High Triple B rating fall to a non-investment grade rating: perhaps to High Double B, because its leverage rises 97% to 6.74x when we estimate current shadow water costs.
  • Institutional investors such as pension funds and insurance companies can enhance their financial analysis by taking a more systematic approach to evaluating water-related financial risk. Benchmarking issuers on exposure to water stress provides a starting point to integrate water risk as a factor in corporate bond valuations.


The new Corporate Bond Water Credit tool and accompanying report can be freely download using the following link




[3] Clark, P., A World Without Water, Financial Times, 14 July 2014



For further information or to arrange interviews, please contact:

Natural Capital Declaration

Rachel Mountain, Head of Communications, Global Canopy Programme, +44 (0)1865 724 333

Robert Bartram, Communications Lead, UNEP FI, , +41 22 917 8934


Simone Dettling, Manager of the Emerging Markets Dialogue on Green Finance, GIZ, +49 (0) 16096907931]


Henrik Ohlsen, Managing Director, +49(0)82141903686


Notes to editors

1) Technical information

The tool incorporates newly-available data from the World Resources Institute on water scarcity at any  location globally into a traditional financial model. It uses a shadow price for water as a proxy for exposure to potentially increasing costs for water resulting from water stress. The calculation of these shadow prices is based on a total economic value (TEV) framework - a concept taken from environmental economics. TEVs are calculated by considering the value of the alternative uses to which this water could be put, if it were not used by the companies analysed (opportunity costs).  Where location-specific water use data isn’t available for a company, shadow water prices across a company’s assets are weighted by production or assets in order to derive a company-wide water shadow price to reflect its overall risk profile. A higher company-specific shadow price indicates higher potential exposure to water stress across its operations. Using the shadow price to calculate a company’s potential water use costs, water risk is introduced into the company’s financial model via operating expenditures. This allows the user to measure the potential impact of increasing water costs on key financial ratios used in credit assessments. 

See for further information.

2) GIZ - an innovative partner for the global challenges of tomorrow

The wide range of services offered by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH are based on a wealth of regional and technical expertise and on tried and tested management know-how. We are a German federal enterprise and offer workable, sustainable and effective solutions in political, economic and social change processes.

Most of our work is commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ). However, GIZ also operates on behalf of other German ministries and public and private bodies in Germany and abroad. These include governments of other countries, European Union institutions, such as the European Commission, the United Nations and the World Bank. We are equally committed to helping our clients in the private sector attain their goals.

GIZ operates throughout Germany and in more than 130 countries worldwide. Our registered offices are in Bonn and Eschborn. We have 16,510 staff members around the globe, almost 70% of whom are employed locally as national personnel.]

Emerging Markets Dialogue on Green Finance

The goal of the Emerging Markets Dialogue Programme (EMD) on Green Finance is to increase capital flows to green investments and thereby enable the transformation towards sustainable economies. To achieve this aim, the EMD works with public and private actors from Emerging Markets and Europe to overcome barriers and gaps to increasing eco- and climate-friendly investments. For example, the EMD works with financial institutions from G20 Emerging Markets and Europe to integrate environmental indicators into lending and investment decisions, risk management and product development.

GIZ is commissioned to implement the EMD by the German Federal Ministry for Economic Cooperation and Development (BMZ).

3) 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).

For more information visit

4) 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.


5) 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.

6) About VfU

The German association Verein fuer Umweltmanagement und Nachhaltigkeit in Finanzinstituten (VfU) is a network of 41 financial institutions from Germany, Switzerland, Austria and Lichtenstein. For more than 20 years, the association and its members are working towards the development and implementation of innovative and sustainable solutions for financial managers in order to promote the contribution of the financial industry to sustainable development.