Water is fundamental to life and the functioning of ecosystems, societies, and economies. However, as vital as it is, water also presents a series of critical risks that span environmental, social, and economic dimensions. The dual nature of water as both a crucial resource and a potential hazard makes it a uniquely complex area for risk assessment and management, particularly in the context of the financial sector as well as the wider global economy. Evidence is growing that water-related risks are not only intrinsic to climate and nature challenges but are also closely tied to socio-economic factors often leading to wider impacts including poverty exacerbation, food security challenges, and even domestic and international conflicts.
Increasingly recognized as a critical, systemic issue, environmental and climate-related risks associated with water are becoming a central concern for financial institutions and many others, including governments and intergovernmental bodies and the public at large. However, current practices in the financial sector, often do not effectively capture and address these risks. A comprehensive understanding and assessment of water-related risks are intrinsic to the stability and resilience of financial systems globally. Indeed, the integration of such risks into financial decision-making processes is still evolving, necessitating a continuous refinement of risk assessment methodologies and the adoption of robust regulatory and guidance frameworks.
From one perspective, water-related hazards include acute events such as floods and droughts, which not only cause immediate disruption but also pose long-term economic impacts. There are also chronic developments such as pollution and increasing ocean acidification having similar effects.
From another perspective, water is a critical resource that underpins various industries including agriculture, manufacturing, and energy production. The financial implications of water scarcity and unequal distribution, therefore, stretch across market sectors, from influencing asset values and operational reliability to threatening livelihoods of certain populations.
This paper was produced to advance the competency of the Actuarial profession by creating awareness, facilitating knowledge sharing and educating actuaries. It was also produced to promote the role of the actuary in emerging wider fields and raise its profile.
