Undervaluing water reduces shareholder value and harms ecosystems
The report, The Value of Water: A framework for understanding water valuation, risk and stewardship, shows that most investment decisions are based on the price of water. However, because water is often heavily subsidized or even free, basing decisions on the price of water only accounts for a portion of the full value. Such narrow approaches are not maximizing shareholder value, nor generating strong social or ecological value.
“The concepts of the price of water, the cost of water and the value of water are often used interchangeably when in reality, they differ considerably,” says Alexis Morgan, Water Stewardship Specialist at WWF International. “Value can be monetary as well as social, proprietary or shared among many water users within a river basin.”
Physical water challenges, such as floods and droughts, as well as regulatory and reputational concerns affect current corporate assets and liabilities and can jeopardize future value, the report shows. Corporate costs and revenues are also affected by decisions made by others operating within a given river basin, emphasizing the need to assess the value of water in a broader context.
The report offers a new framework for water valuation, linking the concepts of valuation, water risk and water stewardship. This framework is then employed to outline an improved approach, structured around a balance sheet and income statement, to ensure comprehensive water valuation. The framework shows how existing tools and corporate actions have been piecemeal in their coverage and leave out significant value elements.