Biodiversity | ~ 4 min read
The puzzle of pricing water
Water is one of the world’s most essential resources and access to clean drinking water is necessary for all human life, yet millions of people live without it. In solving this growing global challenge, water pricing must be addressed.
The risk of restricted access to water can be linked to many of the top global risks identified in the World Economic Forum Global Risks Report 2025. This means equitable pricing of water will become key for both populations and industry sectors in the coming years.
Water prices vary significantly around the world and are not always correlated to its availability. Often the price charged for water is well below the total cost of its treatment and distribution. Such cheap water encourages inefficient use, but higher pricing restricts access.
The cost of providing water presents several challenges in setting prices:
- Costs include sourcing, sanitising and delivering water as well as protecting the ecosystems that provide water.
- These costs are not always passed through to end-customers from the utilities companies because water is a necessity rather than a commodity.
- Utilities companies – often publicly owned – must manage these costs, while governments set the prices.
- Different usage models, eg, households vs businesses are not always considered in water pricing.
While pricing of water is critical to improving its availability, businesses need to more effectively address the risks their operations pose to water resources and understand how these impacts influence changes in water prices.
Regulation and risk reporting
New regulations will increasingly require companies to report the level of risk exposure in areas with high water stress, and the potential earnings and valuation implications, for example through the Corporate Sustainability Reporting Directive. Meanwhile, lowering operational and reputational risks means businesses developing resilient strategies for operating in water-stressed areas and ensuring their use does not aggravate scarcity or limit access for local communities. Advanced climate modelling can help companies identify potential locations of emerging water stress.
A regulatory mechanism for valuing water, while also promoting fair and efficient allocation of resources, is increasingly necessary. This can be actively complemented by investors pushing companies for better disclosures and strategies on the operational impacts and dependencies on water ecosystems and directing capital towards firms that are mitigating risks and providing solutions.
Investor stewardship
While water pricing is a significant issue, we believe that improving corporates’ management of water risks can help to align water availability, costs and pricing models. As investors, we see opportunities to drive change, for example, through focusing on water-related issues in our company engagements and assessing the double materiality of water impacts and risks in our investments. This can aid in pricing the risks associated with higher water footprints - which will in time be reflected in company valuations - but also on much-needed water solutions.
