These multi-billion dollar projects have been cancelled because of a lack of water

Billions of dollars worth of mining and energy projects around the world have been cancelled or mothballed due to a chronic lack of water.

Examples include: the unfinished 2,000-megawatt Lower Subansiri hydropower project in northeastern India, two over-budget coal-fired power plants in South Africa, 200 coal-fired power plants cancelled in China, Newmont’s Conga mine in Peru, Barrick Gold’s mothballed Pascua Lama mine on the Chile-Argentina border, and blackouts in Venezuela this spring due to hydropower production diminished by drought.

Newmont Mining, for instance, the world’s second-largest gold producer, announced in February that it was indefinitely postponing an investment in a $4.8 billion gold and copper development in northern Peru.

Souring market prices played a role in the company’s decision, but Newmont’s decision to mothball a substantial investment was driven in large part by tenacious resistance from local communities. The communities worried that natural highland lakes would be drained during mining and their water supply disrupted.

The idea that assets could be “stranded,” or made worthless because of environmental or social constraints, was applied some years ago to coal, oil, and gas reserves that might not be developed due to carbon regulations. Potential financial losses from not burning these fuels amounts to more than $2 trillion, according to HSBC.

The same thinking is now being applied to water, and the outcomes are not theoretical. There is ample evidence that water scarcity, water pollution, ruinous floods, and local opposition to water-intensive mega-projects are damaging corporate balance sheets in the energy, mining, agriculture, and utility sectors.

“Water security really is stranding assets today,” said Cate Lamb, head of the water program at CDP, a risk disclosure group.

The growing list of assets stranded by water constraints underscores a new consideration for 21st Century business practices: companies can no longer assume that sufficient water supplies will be available, according to Lamb.

The warning applies not only to assets under direct company control – factories, warehouses, generating stations, or processing centers that produce and distribute consumer goods. It also relates to their supply chains, which companies often know less about than their own facilities. Monika Freyman, director of the Investor Water Hub at Ceres, calls supply chains the “bottom of the iceberg” for water risk, referring to the murky sub-surface where the bulk of an iceberg’s mass resides.

Corporate interest in water is intense but hard to grasp, according to Michael Mainelli, founder of Z/Yen, a venture firm. Risk profiles are different for each sector, each country, and each watershed, which complicates the calculations. “Everything becomes local,” he says.

In the face of these risks, the business and finance world is responding. Regulators like the U.S. Securities and Exchange Commission now require climate disclosure. Investors and groups like Ceres are working with companies to ask the right questions about water risk, devise the best way of measuring it, and track down relevant data. Shareholders are pushing executives to act as well. “There’s more recognition of the challenges,” Freyman said.

New financing vehicles provide additional investment options. Climate bonds, a growing subset of the green bond market, promise that the project being developed addresses the risks of a warming world. Policy performance bonds, a potential means of linking finance with social and environmental outcomes, lower the cost of borrowing for governments that meet targets for sanitation coverage, water use, or health improvements.

A green-bond certification programme that began this year will certify whether projects labelled as “green” adequately address climate and water supply risks. The standard will help identify projects that have a smaller chance of being stranded, Freyman said. For investors, that is a valuable asset.

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