Framing water as a financial risk: Reviewing the processes shaping a narrative

Abstract

Water is increasingly framed as a financial risk in equity markets. This article illustrates that this framing must be understood as a new aspect of the wider history of the financialization of the water sector. Unlike earlier instances, where water-related services, or water risks are the primary subjects to be financialized, water itself is here being reformed to fit market logic. This article reviews, unpacks, and analyses the factors that have enabled, reframed, and defined water as a financial risk. As such, the article goes beyond simply reviewing what has happened, but also presents a critical analysis of why and how, and the potential effects this may have. Drawing on advanced theoretical perspectives from the social sciences, specifically building on the constitutive nature of language, the role of expertise in the knowledge-policy interface, and the sociology of quantification, it proposes that the reframing of water into a financial risk is not a value-free exercise. Critically, it shows that the value of water, at least as it relates to company activities, could be reduced to only embody those aspects which, in quantitative terms can be shown to affect Return on Investment. To alleviate this reductive process, an ambitious multiand interdisciplinary research agenda must be developed moving forward to ensure that the multiple values of water are recognized and accounted for in equity markets and beyond.

The impact of water and technology on the stock market in China and Japan based on a new heuristic model

“…In essence, water itself is increasingly framed as a financial risk. Tracing the history of financialization of water, the process can be identified as five distinct phases: 1) water as public good, 2) water services as financial, 3) water risk as financial, 4) water as an economic risk, and 5) water as a financial risk (Rudebeck, 2022).…”

“…However, although many evaluations of water risks have been conducted at the firm level, few have been conducted at the stock market level. Moreover, most ESG providers only consider a minimal set of water indicators, such as "water withdrawal," which may lead to an incomprehensive understanding of the risks associated with water (Berg et al, 2019;Rudebeck, 2022). Thus, more research is needed to unpack how water, as a financial risk, influences the stock market in different regions (Rudebeck, 2022).…”

“…Moreover, most ESG providers only consider a minimal set of water indicators, such as "water withdrawal," which may lead to an incomprehensive understanding of the risks associated with water (Berg et al, 2019;Rudebeck, 2022). Thus, more research is needed to unpack how water, as a financial risk, influences the stock market in different regions (Rudebeck, 2022). Further, because most environmental problems are complex, including those related to water, we may lose valid information if we consider water in isolation (Dimson et al, 2020).…”