Integrating water stress into corporate bond credit analysis

Published October 2015

Integrating water stress into corporate bond credit analysis

Companies that depend on water and operate in locations where water withdrawals are high relative to available water supply are exposed to water risk. Their costs for obtaining the amount of water they need to sustain their operations might rise abruptly or gradually, impacting their profitability, competitiveness and finally their ability to repay their debt.
A new financial model to integrate water stress into corporate bond credit analysis has been developed through a partnership between the Natural Capital Declaration (NCD), GIZ, the German Association for Environmental Management and Sustainability in Financial Institutions (VfU) and seven financial institutions from Europe, the U.S. and Latin America. By combining data on the quantity of corporate water use per production location with cost based on site-specific water supply and demand conditions, the GIZ/NCD/VfU tool for integrating water stress into corporate bond credit risk analysis allows financial analysts to quantify corporate water risk and assess the potential impact of water stress on a company’s credit ratios. Fixed income analysts and portfolio managers can use the Corporate Bonds Water Credit Risk Tool to benchmark companies and assets in water-intensive industries, such as mining, power and beverages industries on exposure to water stress.
Published: 2015 | by: GIZ/NCD/VfU

Integrating water stress into corporate bond credit analysis (1.6 MB | 16 pages)