With the impact of climate change being felt across the world, ‘water neutrality’ is becoming an ambitious but critical investing goal
Responsible investing is gaining traction across Canada, with investors placing more assets in ESG strategies and demand for RI-related designations increasing among advisors. While there are different causes for people to focus on, there’s a practically universal consensus on the importance of addressing climate-change risks.
That issue is important because of its wide-ranging impact, including rising threats from flooding, natural disasters, and crop damage. It also has implications on the world’s water supply — and one Dutch asset manager is taking the lead on research and action on that concern.
“For decades, water risk has been one of the environmental, social, and governance (ESG) criteria we look at,” said Hans van Houwelingen, CEO of ACTIAM, in an interview published by the CFA Institute. “In 2016, we developed and implemented a systematic methodology for evaluating water risks.”
Considering global population growth and rising prosperity around the world, ACTIAM says that only 60% of the world’s population will be able to meet their water needs by 2030. Couple that with the OECD’s projected 55% increase in global water demand by 2050, and the importance of water scarcity as an investment issue becomes clear.
With that in mind, ACTIAM has set an ambitious and ground-breaking goal: to have a water-neutral portfolio by 2030. That means the companies in its portfolio should “consume no more water than nature can replenish and cause no more pollution than is acceptable for the health of humans and natural ecosystems.”
To work toward this goal, van Houwelingen said the asset manager uses several RI tactics including active ownership, exclusion, and ESG integration. It also has a proprietary scoring methodology on financially material sustainability topics that it uses to maintain its ACTIAM sustainable fund range.
“Engagement is an important tool for ACTIAM,” he said, citing company dialogues and proxy voting as specific examples. Aside from discussing water-sourcing practices with electric utilities, the manager engages with garment companies about water pollution, and with consumer companies on plastic pollution. By encouraging companies to be more environmentally responsible, he added, they could cultivate a better reputation among consumers who are increasingly aware of their consumption patterns and impact.
“Clients have responded positively to our goal setting, including water neutrality by 2030,” van Houwelingen said. Not only does the initiative appeal to those who seek asset managers that lead in RI, it also addresses local regulatory pressure for asset owners and institutional investors to address key financial and ecological risks.
One thing that ESG-oriented investors are keen on is non-financial information, and ACTIAM is no exception. “ACTIAM calculates the portfolio’s water footprint by analysing total water consumption per company of business activities in areas where high or greater levels of baseline water stress prevail,” said van Houwelingen. “ACTIAM then calculates an aggregate portfolio level water footprint by using the percentage of the company value owned by ACTIAM … However, the current footprint does not yet include reused water or untreated wastewater discharge. It is a learning curve and we are constantly refining and optimizing our methodology.”