Environmental risks in the power, food and beverage, and real estate sectors can pose new challenges for investors.
What are companies and investors doing about the environmental challenges that will affect their bottom lines? At WRI, we help the financial sector understand environmental risk, be it from climate change, water scarcity, or energy insecurity. We also help companies build resilience in their supply chains and help investors pick the forward-thinking companies that will be good environmental bets in the future.
To that end, the World Resources Institute and HSBC’s Climate Change Centre of Excellence have released new research analyzing the environmental risks facing the food & beverage, power and building sectors in India, Indonesia, Thailand, Malaysia, Vietnam and the Philippines.
The reports show that climate change, energy insecurity and water scarcity are strategic risks for investors in the region, and those companies that manage these risks stand to differentiate themselves from their peers in the future.
Water shortages put the Asian power sector at risk:
In India, for example, 74 GW – over half of existing and planned capacity for major power companies – is located in areas considered to be water scarce or water stressed.
Also in India, 79% of new power capacity will be built in areas that are already water scare or stressed.
Water shortages can cause costly delays and decreases in power production, lowering the rate of return on investment.
Asian food and beverage sector is vulnerable to climate and water risks:
The industry’s dependence on agriculture, aquaculture and water resources for business operations makes it particularly susceptible in a region where climate change is projected to severely intensify water scarcity problems.
Edible oils, starches, and sugar sub-sectors will be most vulnerable to increasing agricultural prices, while aquaculture, poultry, and dairy will be vulnerable to disease and contamination.
As part of the study, HSBC’s analysis on an Indian sugar company shows that a sugarcane price increase of 1 percent can lead to a decline in profit of up to 10 percent.
The commercial real estate sector in South Asia benefits from going green:
As electricity and water prices are expected to increase, “green” building retrofits or new construction can protect the Asian real estate sector from increasing environmental risks emerging in the region.
Most of the energy used by commercial buildings in the region goes toward air conditioning and lighting. In India, for example, lighting accounts for 60 percent of the energy used in commercial buildings while 32 percent goes toward air conditioning.
According to a case study, a typical commercial building (300,000 square feet) in Mumbai, a 1 percent increase in electricity costs could increase annual operating costs by approximately Rs 2.8 million, or around USD 60,000.
About the Reports:Weeding Risk: Financial Impacts of Climate Change and Water Scarcity on Asia’s Food and Beverage Sector is the first report in the three-part series. It looks at seven food and beverage sub-sectors in the region. Findings suggest that the edible oils, starches, and sugar sub-sectors will be the most vulnerable to increasing environmental trends, such as climate change and water scarcity, in the region.
Over Heating: Financial Risks from Water Constraints on Power Generation, analyzes water-related risks facing thermal and hydroelectric power plants in India, Malaysia, the Philippines, Thailand and Vietnam. The analysis found that water shortages pose the highest risk for power generation companies in India compared to the other countries.
Surveying Risk, Building Opportunity: Financial Impacts of Energy Insecurity, Water Scarcity, and Climate Change on Asia’s Commercial Real Estate Sector, assesses the commercial building sector in the region and the financial impacts it could face from energy insecurity, water scarcity and climate change. The report finds that green building investments can alleviate these risks and achieve a positive return for buildings owners in a few years.