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Christopher Cundy

Christopher Cundy

Christopher is a writer for Environmental Finance.Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance, investment…

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China’s Economy Threatened by Water Shortages

Companies in China that use water efficiently will be better positioned to profit in an economy increasingly at risk from water stress and new water regulations, according to analysis by HSBC.

Nine of China’s 31 provinces suffer from extreme water scarcity and 11 are very water inefficient, the bank says in its China’s rising climate risk report. The economies of 14 provinces could be at risk from water stress, because they rely heavily on manufacturing industries, it said.

Government has recognised this and has responded with a target in its 12th five-year plan (2011-15) to cut by 30% the water consumption per unit of value-added industrial output, HSBC notes. Officials have also announced plans to invest about RMB400 billion ($63 billion) per year up to 2020 in water projects, raise the efficiency of rural crop irrigation and cap annual water consumption at 670 billion cubic metres in 2020 (compared with close to 600 billion cubic metres used in 2009).

Late last month, China’s State Council also approved a national plan on groundwater pollution control to 2020, and will spend RMB34.66 billon to improve water quality.

“We expect more policies to be released in order to clean up not only groundwater, but all water sources,” said Wai-Shin Chan, HSBC’s Hong Kong-based director for climate change strategy in the Asia-Pacific region, in a note last week.

“China-exposed companies which are actively investing into making their operations more water-efficient are better placed as provinces strive to meet nationwide targets and the inevitably approaching tariff increases,” he added.

However, Chan told Environmental Finance that assessing corporate water risk is not easy. “In my experience, many companies are not willing to disclose the level of detail needed to adequately assess the risks relating to water.”

Chan has developed a list of 20 questions to ask China-exposed companies about climate change and “trying to garner answers to the questions relating to water [is] a good start”. Companies should monitor water usage, set reduction targets, develop water-efficient products and communicate their understanding of the need for water efficiency to investors, he added.

A non-profit organisation highlighting the issue – China Water Risk – was launched last month. It is sponsored by ADM Capital Foundation, a foundation established by investment advisor ADM Capital to fund innovative approaches to promoting equity and environmental conservation in Asia.

By. Christopher Cundy

Source: Environmental-Finance


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