The topic of conversation for the inhabitants of Monterey, Nuevo León, can not be other than the rationing of drinking water in the city and the hours in which there are water cuts during the week in different parts of the Metropolitan Area. The boom in sales of water tanks and their scarcity is commented on, given that families have made investments in their homes in order to have a reserve of drinking water. In this same sense, Samuel Garcia, governor of the state, announced the end of the useful life of the La Boca Dam on Monday, March 28, due to the drought that affects the entity since the reservoir is at 13% of its capacity. The other two reservoirs of Cerro Prieto and El Cuchillo are at 7.23% and 51.23% of their total capacity. Water has become a scarce resource.
Society is dealing with increasing pressure on natural resources caused by population growth, people’s longevity, economic growth, and increased consumption in both developed and developing countries. About 70% of the planet is covered by water, but only 2.5% of the water is fresh water. Water is a vital natural resource not only for human consumption, but also for agriculture, power generation and is critical for different industrial processes such as mineral extraction or industrial plant cooling systems.
The demand for water is expected to continue to increase in the coming years, which is why water scarcity is one of the greatest global risks in terms of economic and social impact in this decade. This requires companies to be more efficient in the consumption of natural resources if they want to remain competitive and become more sustainable. Not only will they improve the financial management of resources, but they will also promote technological innovation that will be reflected in a better financial result for them.
Different governments are taking action promoting the sustainable use of water and sanctioning those who contaminate the reserves of the vital liquid. Examples include the largest US Environmental Protection Agency fine of $2.8 million on the New Orleans Racetrack for dumping manure and organic waste into a nearby river, and a commitment to invest $5.6 million in a plant. waste treatment.
Like any scarce resource, water runs the risk of seeing an increase in its price due to the growth in demand. Therefore, in December 2020, water futures were created as a new financial instrument to hedge the risk on the price of water and are listed on the Chicago Mercantile Exchange in the United States. This instrument is indexed to the Nasdaq Veles California Water index that measures the price of water in the five largest areas of California, which has appreciated 61.0% from the end of 2020 to date.
One of the fiduciary duties of active managers requires them to always act for the benefit of their clients. This implies considering not only financial factors but also environmental, social and corporate governance (ESG) factors when making investment decisions, ensuring the long-term sustainability of investments.
The car is executive director Fixed Income Latam Investments of BBVA Asset Management
