Water is critical for meeting commitments of the Paris Agreement and achieving the Sustainable Development Goals. Our economies rely on water, with recent estimates putting the economic value of water and freshwater ecosystems at USD 58 trillion - equivalent to 60% of global GDP. At the same time, water related risks are increasing in frequency and scale in the context of climate change. How are investments shaping our economies and societies exposure to water risk? What role can the financial system play in supporting water security? And how can increased understanding of how finance both impacts and depends on water resources spur action towards greater water security? This OECD Green Talks LIVE on Tuesday 14 May 2024 from 15:00 to 16:00 CEST discussed the evolving landscape for assessing water risks to the financial system. OECD Policy Analyst Lylah Davies presented key findings and recommendations from recent OECD work on assessing the financial materiality of water-related risks, including the recently published paper “Watered down? Investigating the financial materiality of water-related risks” and was joined by experts to discuss relevant initiatives underway.

2. Overview
1. Water-related risks: context for action
2. Impacts of water risks on the economy
3. Assessments of financial exposure to risks
4. Key messages and recommendations

3. Too much, too little and polluted water, and disruptions to freshwater systems
• Climate change
• Over-exploitation of water resources
• Land use change
• Pollution
• Invasive species
Risk drivers

4. The socio-economic impacts of water risk are significant
Source: adapted from WMO (2023) Global State of the climate report 2022; Swiss Re (2022)
Note: any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or
area. Map designed by Layerace / Freepik
Western / Central USA
Persistent drought caused USD 22
billion in damages in 2022
Drought Flooding
Horn of Africa
Persistent drought in 2022; 36 million
people affected and 21 million facing
food insecurity
Afghanistan, Pakistan,
Bangladesh and India
Severe flooding in 2022
Estimated damages in Pakistan
worth USD 30 billion
Australia
Multiple floods in 2022
Philippines
Severe tropical storms in 2022
caused 350 deaths
China
Worst drought in decades in the
Yangtze river basin in 2022, with 5
million people affected.
Sahel
Flood affected 3.4 million
people
South Africa
Flooding in 2022 caused 448
casualties and displaced 40 000
Panama
Drought during el Nino caused widespread
disruption to commercial ships passing
through the Panama Canal in 2023
Florida
In 2022 flooding and associated Hurricane
Ian caused 152 deaths USD 113 billion in
damages
Brazil
In 2022 heavy rainfall led to
landslides causing 230 deaths
Brazil
In 2021, Brazil faced its worst
drought in over a century
Central Europe
July 2021 flooding led to estimated
overall losses of USD 54 billion.
Central Europe
Water stress has been characterised
as the largest medium-term climate
risk.

5. Water dependent industries are particularly exposed to water risks
Source: WRI (2023) Aqueduct 4.0: Updated decision-relevant global water risk indicators
Companies disclosing to
CDP’s water security
questionnaires reported:
> USD 15.5 billion in assets
already stranded, or at risk
> At least USD 77 billion in
supply chains is under
threat due to water risk

6. Water risks are not adequately priced in the financial system
ECB study in 2021
• Exposure to physical climate risk (including river and coastal floods and droughts) did not
appear to be priced in the Eurozone banking system.
• Only 20% of banks were mapping climate and environment risk exposure
When risks materialise, financial actors may not be equipped to deal with them.
Missed opportunity to engage with corporates on mitigating risks.
CDP water security questionnaire to financial institutions
Water impacts and risk exposure of portfolios appears to be an under-prioritized issue for FIs
• 33% reported to be undertaking water-related risk assessments
• 15% assessing portfolio impacts on water security

7. Case studies demonstrate potentially significant financial implications
> Water risks can potentially impact on financial stability
> Water related ecosystems play a significant role in nature-related financial risks
Climate Stress Tests Assessments of Nature-Related Financial Risks

8. Key messages and recommendations
Policy makers
> Water security and resilience need to be embedded in policy making across all aspects of the
economy.
Financial market supervisors and regulators
> Important progress has been made on disclosure standards and regulation (e.g.: ISSB, ESRS).
> Increasing ambition is needed to address water risks and impacts on water and freshwater
ecosystems.
> Supervisory guidance on assessing impacts and dependencies on water and freshwater
ecosystems and exposure to water-related climate risks will be essential.
> Further analysis and use cases at national, sector and portfolio level are needed.

9. Key messages and recommendations
Data
> Increased quality and coverage of publicly available data on water availability and quality,
water risk mapping, and status of freshwater ecosystems can support better assessments of
impacts and dependencies at asset level.
> Regardless of data gaps, assessments of impacts and dependencies needs to start now
Financial and non-financial corporations
> Resilience should be a key pillar in investment decisions and business strategy to avoid building
future liabilities.
> Increasing assessment and disclosure is needed on exposure to financially material water risks
and environmental impacts on water and freshwater systems