Water risk encompasses all the risks associated with pollution, demand, and climate change that jeopardize access to freshwater resources. It is inversely related to water security, as water risk increases, water security decreases. Water risk is complex and multidimensional. It includes risks from natural disasters such as flooding and drought, which can lead to infrastructure failure and worsen hunger. When these risks are realized, they result in water scarcity. This can negatively impact food security, livelihoods, and educational opportunities, putting both individuals and businesses at risk. The potential economic effects of water risk are significant. The World Bank predicts a 6% decrease in GDP growth by 2050 due to competition for water resources. Entire industries, such as the food and beverage, agriculture, oil and gas, utilities, semiconductor and industries, are threatened by water risk. Agriculture uses 69% of global freshwater, making the industry extremely vulnerable to water stress. The Sustainable Development Goals were created by the United Nations in 2015 to protect the planet and improve human well-being, and they correspond to the UN 2030 Agenda for Sustainable Development. Over 2 billion people currently live with high water risk, and at least one in four people is expected to be affected by freshwater shortages. To fix this problem, SDG 6, “ensure access to water and sanitation for all,” strives to “achieve access to adequate and equitable sanitation and hygiene for all” and “implement integrated water resources management at all levels,” among other objectives. Managing water risk is crucial not only for meeting the goals of SDG 6 but also for protecting communities, businesses, and the stability of financial markets. The financial sector is becoming more aware of the potential impacts of water risk and the need for its proper management. By 2025, $145 trillion in assets under management are expected to be exposed to water risk. To help mitigate water risk, companies can develop water risk management plans. These can then be used by financial markets to measure company environmental, social and governance performance and identify leaders in water risk management. For example, the Water Risk Index launched by Thomas Schumann Capital evaluates the water risk in financial portfolios to help asset managers mitigate water risk. The World Resources Institute has also developed an online water data platform named Aqueduct for risk assessment and water management. China Water Risk is a nonprofit dedicated to understanding and managing water risk in China.
