Water: too much of it can cause devastation, too little leads to desolation. It is already becoming the key medium through which society bears the brunt of climate change. Yet as a risk, it is underappreciated and undervalued by companies and the risk transfer industry. That needs to change because the industry can in fact play a key role in helping society manage what will become a growing problem.

That is the view of Suzanne Scatliffe, global sustainability director at AXA XL. She told Intelligent Insurer that the re/insurer is working on a plethora of tools designed to help clients better understand how they are exposed to water risk—and how they can mitigate some of those risks. But more awareness is needed around this complex risk, she believes.

“If we think about climate change, water is the primary medium through which we will feel the effects, be that through water shortages or because extreme weather impacts rainfall, snowmelt, and river flows,” she said.

“Natural catastrophes contribute significantly to the deterioration of water quality. According to McKinsey in 2020, two thirds of businesses have substantial water-related risks in their operations or in their supply chain, yet these are rarely discussed. We need to create awareness and catalyse action around this topic.”

Delve into the research around water risks, an area AXA XL has bolstered considerably in the past few years, and some of the findings are startling. The context alone is interesting: despite 70 percent of the earth’s surface being made up of water, only 2.5 percent of that is freshwater that is drinkable. According to the United Nations, there will be a 40 percent shortfall in the global water supply by 2030.

That has led the likes of McKinsey, which has also done detailed research into this subject, to claim in 2020 that water is as valuable to the global economy as oil or data. Yet, says Scatliffe, despite the very real risk of water shortages, as well as other threats, many companies have not fully understood the challenges that water risk poses to them in the near to medium term, and few have taken active steps to mitigate the risks.

The World Economic Forum’s “Global Risk Report” has for several years highlighted water risk as a major—and growing—concern. As such, AXA XL has been working with clients and stakeholders across industry and society to understand the risks posed by water scarcity—as well as flooding and other water-and-climate related threats, Scatliffe says.

This work falls under its Valuing Water programme which aims to highlight the economic and social value of water for its clients and wider communities.

“We know climate change is likely to cause too much, or too little, or water that’s unfit for purpose. We know that water availability is becoming far less predictable in many places, in both developed and developing markets.

“The impacts from a social perspective are numerous. It can harm young people’s access to education, affect health, deepen social inequalities, cause conflict, bring food insecurity—the list goes on,” Scatliffe explained.

When the industry considers which companies are prone to water risks, she says, the temptation is to focus only on industries that directly use large quantities of water, such as beverage companies or textiles.

“But all industries need to be thinking about this: where their operations are, where their customers and employees are. If those areas become water-stressed, their business models are no longer fit for purpose. There’s a huge amount we need to do to create awareness,” she said.