Why some of the world's biggest companies are increasingly worried about water scarcity

On April 21, 2021, dry cracked earth can be seen along the banks at Phoenix Lake in Ross, California. Getty ImagesLONDON Large companies from a variety of industries are becoming more concerned about water availability and cost. The relative low cost and availability of water doesn't usually attract much attention until it runs out. Analysts warn that even companies that have a low financial risk of water scarcity should be prepared for disruption. This comes at a time where water prices are increasing around the globe. According to Barclays data, the average water price in the 30 most populous U.S. cities increased by 60% between 2010 and 2019. California Water Futures prices have risen by as much as 30% in recent years. Barclays published a June 14 research note that identified water scarcity in the global consumer staples industry, which covers everything food and beverage to tobacco and agriculture. Analysts at the U.K. bank stated that consumer staples was the most vulnerable sector to water risks. It could suffer a $200 billion loss due to water scarcity. It was due to its strong dependence on agricultural commodities, which makes it extremely vulnerable to fluctuations in water prices and operational risks such as disruptions from extreme events like droughts or flooding. Fines and lawsuits are also associated with pollution.Water scarcity is a critical issue because if it runs out, you will have serious problems. It is also one of the classic externality risks due to its low price. Beth Burks, Director of Sustainable Finance at S&P Global RatingsAccording to the bank, water-related comments in company transcripts increased by 43% last year compared with the end of 2019. This was due to a growing awareness among corporate leaders about the dangers associated with sanitation and clean water. According to sustainable investors, they also seem to prioritize other environmental issues. Analysts at Barclays stated that investors are focusing on rising carbon costs rather than the potential impacts of recent conservations. Research showed that water risk could have a three-fold greater financial impact than carbon risk.Inaction is costly"Water scarcity" is a critical issue because it can lead to serious problems. Because of its low price, it is also one of the classic externality risk. Beth Burks, S&P Global Ratings' director of sustainable finance, spoke via telephone to CNBC. It must be managed carefully and thoughtfully. There isn't always a natural pricing signal to help us conserve it. Water prices don't tend to reflect its scarcity because it is often available at very low costs or even free. Barclays analysts believe that water availability is a key component of many economic sectors. They have linked the recent rise in global water prices to the asset's increasing scarcity. After incorporating the direct and indirect costs associated with water shortages, the bank calculated that water's "true cost" was between three and five times higher than what companies pay today.Half-loaded cargo ships pass the low water level in the River Rhine as they pass the vineyards in Osterspai, Germany on November 13, 2018. Unfavorable wind conditions and summer heat in Germany caused a heat wave and a heat wave. The Rhine, which runs through Germany and begins in the Swiss Alps, was at its lowest level ever. Getty Images NewsAccording to the bank, proactive water management will cost $11 billion for the global consumer staples industry. The cost of inaction is 18 times higher than the cost for action. The bank identified agricultural exposure as the key determinant of financial risk from water shortages. Agribusinesses like Tyson Foods and ABF face a 22% EBITDA effect, which is an acronym for earnings before interest taxes, depreciation, amortization, and taxes. Global consumer goods giant Unilever, Colgate, and Reckitt Benckiser are the most vulnerable companies. Even in the least extreme of Barclay's scenarios, they all face an estimated 40% to 50% EBITDA impact. Reckitt Benckiser claims it will be "water-positive" in water-stressed areas by 2030. It currently has 20 such locations. Reckitt Benckiser has begun a series "listening sessions" to engage key stakeholders in addressing climate change and water risks. Reckitt Benckiser spokeswoman told CNBC via email that they recognized the negative effects water stress can have on people's lives, health, and business. They said that their brands have helped improve access to safe water and sanitation in many areas with high water stress, including Bangladesh, Pakistan, and India. Unilever and Colgate didn't respond to a request to comment.Reputational, regulatory and physical risks