Water Risks In Corporate Bond Analysis

Extreme weather events such as droughts are becoming more frequent and severe worldwide. Given the related detrimental effects on economic activity, water risks are already considered by rating agencies such as S&P and Moody’s as a significant factor impacting the creditworthiness of companies. In order to address such water risks in the fixed income universe, we successfully finalized a pilot project with the objective to provide the necessary methodological toolkit and capacity for finance professionals to quantify and assess water risks in corporate bond credit valuation. We developed an innovative model and complementary open source tool, the Corporate Bond Water Risk Tool, which provides users with a systematic and practical approach to integrate corporate exposure to water scarcity into standard financial models used in corporate bond credit valuation.

The pilot project was accomplished in cooperation with seven financial institutions from the Americas and Europe,

  • Bancolombia (Colombia)
  • Banorte (Mexico)
  • Calvert Investments (U.S.)
  • J. Safra Sarasin (Switzerland)
  • PAX World Investments (U.S.)
  • RobecoSAM (Switzerland) and
  • UBS (Switzerland/U.S.),

as well as our implementation partners, the Natural Capital Declaration (NCD, represented by United Nations Environment Programme Finance Initiative (UNEP FI) and the Global Canopy Programme) and the German Association for Environmental Management and Sustainability in Financial Institutions (VfU).

Publications & Tools

Corporate Bond Water Risk Tool

By combining data on the quantity of corporate water use per production location with newly available data from the World Resources Institute on water stress at any location globally, the Excel-based, open source tool enables financial analysts to integrate a company’s exposure to water stress into traditional financial models of corporate bond credit analysis.


Integrating Water Stress Into Corporate Bond Credit Risk Analysis – Benchmarking Companies in Three Sectors

Supplementing the tool, the report Integrating Water Stress Into Corporate Bond Credit Risk Analysis – Benchmarking Companies in Three Sectors provides an understanding of the underlying methodology, illustrated by the application of the tool to 24 companies in three water-intensive sectors (beverages, mining and power). There is also a summary version available.

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Financial Institution Partners

Implementation Partners