Water scarcity: all hands on deck!

💦 We’ve long acted as though our water resources were limitless. Yet the United Nations warns that global freshwater demand could exceed supply by 40% by 2030. Already, nearly three billion people face water shortages. How can we manage our most critical shared resource more effectively? As in many areas, the solution lies, in part, in coordinated action.

• Around the world, many regions now use more water than can be replenished, leading to water stress when over 40% of their available supply is consumed. Climate change is only making things worse, with the warming atmosphere now absorbing more water than before from soil evaporation, causing increased droughts even in traditionally spared regions. The accumulated water vapour then falls as intense rain, increasing flood risks globally and hindering underground reserve recharge, explains hydrologist Emma Haziza in our latest issue of Perspectives.
• Water scarcity is a major issue, with fresh water vital for all life, ecosystems, and humans. Our lifestyles, for instance, require significant amounts of water: though we need drink no more than 2 litres a day, we use 5 to 10 l per toilet flush and 50 to 100 per shower, and global consumption averages 140 l daily per person. Our indirect use is even greater, as nearly everything we consume comes with a heavy water footprint – a single pair of jeans takes 11,000 l to produce. More broadly, water is crucial for all economic activities, from manufacturing to energy production.

• “Virtual water is a fairly new concept, but it can be crucial when we try to understand water issues holistically. The concept covers all the water consumption necessary for a product or a service. Much like a carbon footprint, it enables people to calculate their water footprint”, explains Aymeric Olibet , Low-Carbon & Sustainable Transition, MidCaps & SMEs, BNP Paribas, in Perspectives.
• But water management isn’t only about cutting this footprint – it’s also about security. The World Economic Forum reports that over 3 billion people rely on water that crosses national borders, yet only 24 countries have cooperation agreements on the subject, raising the risk of instability and conflicts over water competition.
• Reducing our freshwater consumption through better management is thus crucial. Regulators are already working towards this, with many green laws now addressing water issues. In 2023, the Taskforce on Nature-related Financial Disclosures (TNFD) released 14 recommended disclosures, including on sourcing and water pollution. Meanwhile, frameworks like the EU’s CSRD are leading companies to set themselves science-based water targets and scale up efforts to address water challenges.
• The private sector also has a critical role to play, across all industries, starting with agriculture, which accounts for 72% of freshwater withdrawals. With over half of the global food production at risk of failure by 2050 due to the water crisis, agriculture must implement water resource management at both local and regional levels. Techniques like hydroponics, drip irrigation, agroforestry, or regenerative agriculture can help; in the Midwest, for example, winter soil cover cuts erosion 60%, while limited ploughing cuts runoff by 9%, helping soils retain more water.
• Mining, too, is a major consumer of freshwater, essential for separating minerals from rock during extraction. In the next 30 years, we may need to extract as much metal as humanity has throughout history to meet the demand for electric batteries, wind turbines, and solar panels. According to the WRI, 16% of the required metal deposits and mines are located in highly water-stressed areas. To tackle this, THE INTERNATIONAL COUNCIL ON MINING AND METALS LIMITED , which represents a third of the global mining industry, has made water reporting mandatory for its members, a move that could lead to significant progress.
• Data centres, too, consume vast amounts of water, mostly for cooling. BNP Paribas’s division IMEX , in charge of managing the bank’s real estate portfolio, is working to reduce our assets’ footprint. The data centres in its portfolio have thus been eco-designed and use highly water-efficient ‘free-cooling’ or ‘free-chilling’ systems that rely on outdoor air and closed-circuit coolers to cool IT rooms.
• In fact, there are many ways financial actors can help combat freshwater scarcity, starting with financing the blue economy through instruments like blue bonds, which companies can use to fund projects that protect water resources and address climate impact. With support from BNP Paribas CIB , water industry leader SAUR has successfully issued the first public benchmark blue bonds, with demand exceeding supply by a factor of three. These funds will help Saur support water production and distribution, wastewater collection and treatment, and seawater desalination projects with minimal environmental impact.
• Banks and financial institutions are also increasingly tracking the water footprint of their investments portfolios and setting reduction targets. When BNP Paribas first measured this footprint in 2021, we discovered that only 30% of our investee companies disclosed their water consumption. “Private investors therefore clearly have a role to play in strengthening investments and channelling financial resources into infrastructure maintenance and new technologies in the water sector”, writes Lise Tanfin , ESG Analyst at BNP Paribas Asset Management .

🧩 Green hydrogen (produced using decarbonised energy sources) has the potential to significantly reduce greenhouse gas emissions while accelerating the energy transition.

•  That is why the EU has made hydrogen a pillar of its net zero strategy, with a goal to reach 20 million tons per year of low-carbon hydrogen demand by 2030. This strategy is driven by the need to decarbonise mobility and energy-intensive processes across sectors like steel, shipping, aviation, fertilisers, and mobility. No less crucial is the need for Europe to ensure its energy sovereignty in an increasingly complex geopolitical context.
• Yet the roll-out of green hydrogen on the continent has been slowed by several challenges: strict compliance requirements for renewable fuels of non-biological origin are driving up its price, while more infrastructure remains needed to connect supply to demand at industrial centres.
• Additionally, switching to more expensive energy could impact the European industry’s competitiveness, leading certain industries to delay their transition to hydrogen. Fertilisers, for instance, are likely to keep relying on natural gas and imported grey ammonia for some time.
• A highly delicate environment that BNP Paribas helps its clients navigate notably through its Low Carbon Transition Group. Curious to find out more? Head there for insight from our expert Romain Talagrand ⤵️

💸 In Asia and the Middle East, sukuk (or Islamic bond) issuance is flourishing, notably in green format, amid growing global investor interest.

• Sukuk have existed for over 20 years but have gained significant momentum in recent years, driven by the development of the Islamic finance market, now valued at over 4 trillion dollars. The sukuk market alone is set to reach the 1 trillion mark by 2026.
• The reason for this meteoric rise? In times of uncertainty and market volatility, sukuk have emerged as a haven for investors, with a majority of them issued by highly rated sovereign or quasi-sovereign issuers from the Gulf. This has led to growing interest in the Islamic bond market and increasing familiarity with sukuk among international investors.
• Another factor driving this interest is the emergence of green sukuk. The Islamic Development Bank took a decisive step in 2019 by issuing its first Euro green sukuk, recently followed by a guide on Green, Social and Sustainability (GSS) Sukuk principles, set to pave the way for standardisation and a rise in GSS sukuk issuance.
• The teams at BNP Paribas are actively building expertise at the forefront of Islamic finance. At the recent Triple A Islamic Finance Awards 2024, the bank was recognised in several categories, including Best Sukuk for Kingdom of Saudi Arabia USD6 billion dual-tranche mudaraba/urabaha trust certificates, Best Supranational Sukuk for Islamic Development Bank USD1.75 billion senior unsecured sukuk, and Most Innovative Islamic Deal for Public Investment Fund USD3.5 billion dual-tranche wakala sukuk. Dive in for our perspective on this blooming market.

🐝 With one million species now at risk of extinction, the message is clear: urgent action is needed from both public and private actors to safeguard biodiversity.

• The Kunming-Montreal Global Biodiversity Framework, adopted at COP15 in Montreal in December 2022, set ambitious goals and targets to stop and reverse biodiversity loss by 2030. The agreement notably urges companies and financial institutions to better recognise biodiversity in their investments, analyse their nature-related dependencies, impacts, risks, and opportunities, and implement financing solutions for activities that help protect nature.
• From 21 October to 1 November, the Colombian city of Cali hosted COP16 Colombia , aimed at assessing the progress made towards the Kunming Agreement goals and securing funding for its implementation. However, delegates were unable to reach a consensus. In the face of this setback, action from private actors is more crucial than ever.
• At BNP Paribas, we fully intend to play our part. Our efforts include embedding nature-positive criteria into our financing and investment policies and developing tailored financing solutions for biodiversity-focused projects. Find out more there ⤵️

📗 Next up on your reading list? The definitive book on how to address our global food waste problem.

• This month’s book, a must-read for anyone passionate about tackling food waste, comes highly recommended from our colleague Marie-Line Eyermann , Sustainability Program Manager, Social Entrepreneurship at BNP Paribas.
• “From Dumpsters to Dinners: 10 Years of Fighting Food Waste in France and the United States”, by sociologist and expert Marie Mourad , dives into a decade of food waste prevention policies in France and the United States. Highlighting France’s 2016 anti-waste law as a model for legislators in other countries, Mourad advocates for systemic, prevention-driven solutions to handle food surplus and calls for “strong” sustainability approaches to drive lasting change.