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Liquidity at risk: Water scarcity’s impact on chemical company fundamentals
Rising water scarcity poses material financial risks for the global chemical industry, an industry responsible for an estimated 5-10% of global freshwater withdrawals. Despite its critical reliance on water for cooling, steam generation, and production processes, most chemical companies lack measurable, time bound targets for reducing withdrawals. As water stress intensifies globally – driven by climate change, regulatory tightening, and growing competition for limited freshwater – these gaps translate into significant operational and valuation risks.
作者
Sector Lead Industrials
概要
- Water withdrawals are increasing from industry, agriculture and populations
- Demand is outpacing supplies, reducing availability for stakeholders globally
- Chemical companies face revenue and valuation risks under water stress testing
The following water-risk analysis is a collaborative effort between Robeco’s Sustainable Alpha and Fundamental Equities teams which models a 10% water supply shock in 2030 across four chemical companies operating globally.
The results reveal an important paradox – companies with the strongest operational resilience often experience the greatest destruction of shareholder value due to thin margins, high fixed cost structures, and negative operating leverage. Across all four firms, even modest production losses lead to disproportionately large declines in EBITDA, enterprise value, and equity NPV.
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Moreover, these results highlight that mainstream ESG data frequently fails to capture the true extent (let alone the financial materiality) of water scarcity. This analysis underscores the need for more systematic and granular water risk research not only for chemical companies, but for any business operating in water stressed regions or which are heavily dependent on freshwater access.
Our hope is that this analysis contributes to establishing a more robust, forward looking water risk framework for investment teams – a framework that encourages investors to integrate water stress scenarios into fundamental valuations, engage companies on absolute withdrawal targets, and prioritize firms that incorporate water availability into long term capital allocation decisions.
Important information
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong. This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions. The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
