Skip to main content

Disclaimer

The copyright of the documents on this site remains with the original publishers. The documents may therefore not be redistributed commercially without the permission of the original publishers.

Mitigating corporate water risk : financial market tools and supply management strategies

A decision framework for business water-risk response is proposed that considers financial instruments and supply management strategies. Based on available and emergent programmes, companies in the agricultural, commodities, and energy sectors may choose to hedge against financial risks by purchasing futures contracts or insurance products. These strategies address financial impacts such as revenue protection due to scarcity and disruption of direct operations or in the supply chain, but they do not directly serve to maintain available supplies to continue production. In contrast, companies can undertake actions in the watershed to enhance supply reliability and/or they can reduce demand to mitigate risk. Intermediate strategies such as purchasing of water rights or water trading involving financial transactions change the allocation of water but do not reduce overall watershed demand or increase water supply. The financial services industry is playing an increasingly important role, by considering how water risks impact decision making on corporate growth and market valuation, corporate creditworthiness, and bond rating. Risk assessment informed by Conditional Value-at-Risk (CVaR) measures is described, and the role of the financial services industry is characterised. A corporate decision framework is discussed in the context of water resources management strategies under complex uncertainties. [authors abstract]

TitleMitigating corporate water risk : financial market tools and supply management strategies
Publication TypeJournal Article
Year of Publication2012
AuthorsLarson, WM, Freedman, PL, Passinsky, V, Grubb, E, Adriaens, P
Paginationp. 582 - 602; 4 fig.; 1 tab.
Date Published2012-10-01
PublisherWater Alternatives Network
Place PublishedS.l.
Keywordsdecision making, decision support systems, water management, water quantity, water shortage
Abstract

A decision framework for business water-risk response is proposed that considers financial instruments and supply management strategies. Based on available and emergent programmes, companies in the agricultural, commodities, and energy sectors may choose to hedge against financial risks by purchasing futures contracts or insurance products. These strategies address financial impacts such as revenue protection due to scarcity and disruption of direct operations or in the supply chain, but they do not directly serve to maintain available supplies to continue production. In contrast, companies can undertake actions in the watershed to enhance supply reliability and/or they can reduce demand to mitigate risk. Intermediate strategies such as purchasing of water rights or water trading involving financial transactions change the allocation of water but do not reduce overall watershed demand or increase water supply. The financial services industry is playing an increasingly important role, by considering how water risks impact decision making on corporate growth and market valuation, corporate creditworthiness, and bond rating. Risk assessment informed by Conditional Value-at-Risk (CVaR) measures is described, and the role of the financial services industry is characterised. A corporate decision framework is discussed in the context of water resources management strategies under complex uncertainties. [authors abstract]

NotesWith bibliography on p. 599 - 602
Custom 1202.3

Downloads

Useful links

Disclaimer

The copyright of the documents on this site remains with the original publishers. The documents may therefore not be redistributed commercially without the permission of the original publishers.