Treading the waters – a look at the risks that will shape the future

A new report from AXA has shone a light on the water risks that many industries and businesses are facing, especially as the world adapts to the challenges of climate change. The report outlines not only the risks involved, but their grouping according to the damages that they can cause, and which industries are most likely to be affected by them.

The insurer said that the report aims to improve its clients’ understanding of water-related risks and how they can affect their operations. The weight of these negative effects, in turn, can hopefully be a deterrent to combat them and improve water security across the world.

AXA categorizes water risks based on the effects that they can cause: physical, reputational, or regulatory. Regardless of its category, all these risks have varying levels of impact that they can cause to various businesses and industries.

Determining the physical risks

Physical risks vary, but they can be summed up as having too much water (floods) or too little of it (drought, unclean water). Below are the physical risks outlined by the report:

• Water scarcity – a risk that heavily affects the industries and sectors with the highest water usage. The food and beverage industry, agriculture, apparel and textiles, utilities, and manufacturing are all shown to be at risk from the insufficiency of water.
• Climate change and threats to ecosystems – besides the general uncertainty caused by the constantly changing climate, its damage to ecosystems through more disastrous weather events cannot be overstated. Industries that will suffer from water scarcity are also exposed to the risks posed by climate change, in addition to transport and logistics, which will be affected by disruptions to their distribution operations.
• Poor water and pollution of water resources – scarcity is not the only risk that targets the world’s water security, as the lack of access to clean water is also a major hindrance. Food and drink production, as well as agriculture, are all at risk when there’s little clean water to go around. Pharmaceuticals and tech sectors are also vulnerable to poor water quality.
• Flooding – with the New Zealand property insurance sector expected to take a major hit due to recent extreme weather events, flooding has proven itself to be a risk that will be taken more and more seriously as the world goes through the effects of climate change. All industries can be affected by flooding, but it’s the transport sector that is possibly the most exposed due to its disruption of roads and other means of transportation.
• Poor management of water resources – a risk that’s highly relevant for water companies. Poor management of water resources can directly lead to shortages.

A hit to reputation

While the effects of physical water risks cannot be overstated, some economic costs can eventually be covered. What’s harder to manage in the aftermath is the potential for a water risk to damage a company’s reputation. As a critical corporate asset that can be difficult to manage and quantify, managing water risks becomes doubly essential to keep a firm’s standing from being sucked into the depths.