Climate Change and Water – Impacts on Water And What Investors Can Do
BlackRock Investment Institute made the headlines in early 2020 for becoming one of the first investment managers to factor climate change into their investment strategy. “Climate risk is investment risk,” they explained in an open letter to stakeholders:
“What will happen to the 30-year mortgage … if lenders can’t estimate the impact of climate risk over such a long timeline? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding?”
AQUAOSO focuses on water risk, and the same principle applies here: water risk is business risk, and the connection between climate change and water security is becoming increasingly clearer.
By 2030, half of the planet will be at risk of “severe water stress,” according to a U.N. panel, unless steps are taken to invest in sustainable infrastructure, re-allocate water more efficiently to key sectors, and assess the impact of global trade patterns.
This article looks at the link between water resilience and climate change, and the role that agricultural investors can play in building a more sustainable and profitable future.
(Part of our Agriculture Investment Guide)
How Climate Change Puts Water Infrastructure At Risk
One aspect that makes climate change so hard to adapt to is that different regions will be impacted in different ways. Even within the U.S., there’s a wide gap between the drought risk of the most vulnerable states and the least vulnerable. Weather patterns like rainfall and snowpack, as well as existing water infrastructure, all contribute to a region’s environmental – and therefore financial – stability.
To make matters worse, a lot of in-place infrastructures weren’t built with long-term climate change in mind. Open-air reservoirs may result in more water loss due to evaporation as average temperatures rise. Canals may not be able to withstand hot and cold extremes. Even if the total amount of freshwater available in a given region remains stable, it may not be as easy to access and transport throughout all seasons and conditions.
For example, the Pacific Northwest has been impacted by a condition that’s known as “wet drought.” When this happens, overall precipitation is high – even above average – but it falls as rain instead of snow, reducing the region’s snowpack, which growers rely on (in the form of snowmelt) in the spring and summer to irrigate their crops. As Pacific Standard puts it, it only takes a few degrees of warming to change a region’s rainfall patterns.
Changes to the Water Cycle
Reduced snowpack isn’t the only potential disruption due to climate change. The timing of snowmelt also matters. In California, runoff from the Sierra Nevada snowpack usually starts in April, but if warmer temperatures arrive earlier, it can lead to flooding.
Flooding can lead to an immense amount of water loss due to runoff. The ground cannot withstand mass amounts of water at one time and although larger quantities of water can be carried onto properties during snowmelt flooding, much of that water will be lost as runoff.
Investments and properties can be made more flood-resilient through preventative on-farm practices that can help mitigate water loss through the enhancement of soil quality. Healthy soil is proven to retain more water during times such as the present, when water supply rapidly fluctuates between flooding and drought.
The First Step Towards a Silver Bullet
Because the impact of climate change on the water cycle varies so widely from region to region, there’s no easy fix to these issues. Data, however, can aid in understanding the effects of changing weather patterns across.
In the case of runoff, NASA has been “developing new remote sensing methods that can reveal how much water is stored in mountain and seasonal snowpack” in order to predict “the timing of the spring melt, which has downstream effects on hydroelectric power generation and planning for how much water can be held in reservoirs.”
NASA also uses satellites to collect real-time rainfall data, and they can even measure the amount of water contained in underground aquifers by detecting changes in Earth’s gravity. All of this data contributes to a more accurate picture of how climate change is affecting water resources and the industries that rely on them.
As Chris Peacock, the founder and CEO of AQUAOSO puts it in a podcast episode on climate change with Nori: “The visualization of how water moves around is one of the most important elements to understand what’s actually going on in the system.”
AQUAOSO’s Water Security Platform aggregates water data into one place: “We’ve spent a lot of time geospatially mapping all of our data sets… which gives our users a really quick view of what’s going on on a very particular piece of land or in a very specific geographic area… Identifying where the water is moving and how it gets from location to location is really important in order to start making better decisions.”
The Climate Footprint of Water
There’s another aspect to climate change and water resiliency that can be overlooked in the focus on weather patterns, and that’s the cost associated with moving water from one place to another. After all, as Chris explains, water is heavy:
“[Water is] incredibly expensive to move, whether you’re moving it through pumps and pipelines over a mountain [or] through a canal.”
This means that transporting water has both an environmental and a business cost. By reducing the distance that water has to travel – by trading water rights instead of actual water, for example, or by growing water-intensive crops in regions with sufficient water resources – we can cut down on the climate footprint of water in agriculture.
“Now that we have access to better water data,” says Chris, “one of the opportunities that we have in front of us is the ability to start tracking the cost of pumping that water, the carbon footprint associated with that water, and alternative supplies to getting water to the same locations at a lower carbon and cost footprint.”
How Sustainability Can Be Profitable
Protecting our water resources and making smart financial investments are not at odds. In fact, they complement each other. Recent studies suggest that impact investing is outperforming traditional investing.
And a report by the World Wildlife Fund calls on investors to “begin to recognize water risks for what they are: a material issue that needs to be accounted for in the decision making of any modern financial institution.”
Having a centralized resource that puts all stakeholders – including growers, investors, regulators, and municipal water utilities – on the same page is key. AQUAOSO is committed to putting data into the hands of agriculture professionals, investors, lenders, and more. Each investment or loan toward a water sustainable parcel or property is a step toward global water resilience.
“We think the economics of water can help move water to the right places at the right times,” Chris says. “If you do things in the right way, you can get higher value over time out of your land. And there’s a lot of really great things that we can start doing for the environment by leveraging economic incentives.”
Read more in our Agriculture Investment Guide, created to add depth and context to how wise investment decisions and an understanding of water risk go hand in hand.
The Bottom Line
AQUAOSO’s Water Security Platform provides an easier way to research water risk for lenders, investors, and growers alike. Whether it’s monitoring an existing portfolio, exploring potential investments, or pricing water risk directly into loans and other financial decisions, AQUAOSO can help.
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