What's Happening?
The investor network FAIRR has released a research briefing emphasizing the urgent financial and economic challenges posed by water insecurity, particularly in intensive animal agriculture. The report highlights that poor water stewardship exposes the trillion-dollar livestock industry and its investors to substantial risks across the agri-food value chain. FAIRR warns that the cost of inaction could be significant for investors with direct access to animal agriculture companies. The briefing notes that approximately 60% of global GDP relies on water access, and economic growth forecasts may be hindered by limited access to renewable water resources. The agriculture sector accounts for about 70% of global freshwater withdrawals, primarily for water-intensive crops used in livestock feed. FAIRR stresses the need for transitioning to business models that support water resilience, defined as the ability to adapt to, mitigate, and recover from water-related challenges.
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Why It's Important?
Water scarcity poses a critical threat to the livestock industry and its investors, potentially leading to increased operating costs, supply chain disruptions, and decreased shareholder returns. FAIRR estimates that addressing water scarcity risks could cost companies between $200 billion and $300 billion, significantly less than the potential losses from inaction. The report underscores the importance of transitioning to water-resilient business models to safeguard economic growth and sustainability. Investors and companies in the agrifood sector are encouraged to improve disclosures around water insecurity risks, set targets for water resilience, and define metrics for quantifying water withdrawals. These steps are crucial for mitigating the financial risks associated with water scarcity and ensuring long-term sustainability in the industry.
What's Next?
FAIRR recommends that investors collaborate with companies to enhance their water risk disclosures, set water resilience targets, and develop strategies to conserve non-renewable water resources. The transition to water resilience requires action from policymakers, global leaders, businesses, and consumers. Investors can play a pivotal role by encouraging companies to set water efficiency or reduction targets and linking them to executive pay. As water insecurity varies by geography, major agricultural regions like the midwestern US, northern China, India, and the Middle East face significant baseline water stress. Addressing these challenges will be essential for maintaining economic stability and growth in the agrifood sector.
