A new report by Ceres finds that water scarcity may present a hidden financial risk for investors who buy water and electric utility bonds. The report titled The Ripple Effect: Water Risk in the Municipal Bond Market, evaluates and ranks water scarcity risks for public water and power utilities. According to the report, the most stressed areas include Los Angeles, Phoenix, Dallas and Atlanta.
"Water scarcity is a growing risk to many public utilities across the country and investors owning utility bonds don't even know it," said Mindy Lubber, president of Ceres, which authored the report. "Utilities rely on water to repay their bond debts. If water supplies run short, utility revenues potentially fall, which means less money to pay off their bonds. Our report makes clear that this risk scenario is a distinct possibility for utilities in water-stressed regions and bond investors should be aware of it."
This research follows an earlier report issued by Ceres titled Water Scarcity and Climate Change: Growing Risks for Business and Investors (February 2009, Ceres and Pacific Institute). In that report, Ceres identified water scarcity as a potential financial risk to companies who have historically taken clean, reliable and inexpensive water for granted.
Water scarcity is continually emerging as a critical climate change-related impact that businesses, governmental authorities and the public need to address now. While water scarcity is a concern now in many areas, such risks will be exacerbated around the U.S. by climate change warming trends. The Natural Resources Defense Council in its recent report, Evaluating Sustainability of Projected Water Demands Under Future Climate Change Scenarios (July 2010), predicts over 1,100 U.S. counties will see greater risks of water shortages due to climate change.