What are the economic risks of water across key sectors?

Our Aquanomics model reveals the impact of water risk on five critical sectors within the global economy: agriculture; banking and insurance; energy and utilities; fast-moving consumer goods (FMCG) and retail; and manufacturing and distribution. While these sectors are diverse, with very different types and levels of water risk, they are all expected to face significant output losses in the years up to 2050.

Agriculture is the world’s thirstiest industry, accounting for approximately 70 percent of global freshwater withdrawals. Our Aquanomics model estimates the sector could lose USD 332 billion in economic output between 2022 and 2050.

Droughts have devastating effects on crop cultivation and livestock farming, while flooding and storms can damage infrastructure, crop lands, livestock shelter and farming equipment. Water-related disasters can also have a long-term impact on the productivity of agricultural land. Disruption to food production can impact imports and exports, which can affect global food security as well as impacting health and social equity within countries.

As a proportion of overall output, the banking and insurance sector has a more optimistic outlook compared to other sectors. However, our Aquanomics model projects it could still incur losses of USD 514 billion between 2022 and 2050.

These losses will primarily come from the indirect wider disruption caused by droughts, floods and storms, such as reductions in productivity and economic activity in the aftermath of these events. Additional long-term impacts include the disruption of trade, increased insurance payouts and the disruption of vital infrastructure.

The energy-water nexus means the availability of water resources can directly affect the productivity of energy systems, and vice-versa. Our Aquanomics model projects total output losses of USD 237 billion to the energy and utilities sector by 2050.

Restricted access to water can limit energy production due to the shutdown of powerplants (such as hydro and nuclear) while flooding and storms can result in direct damage to energy and water infrastructure, as well as limiting solar power production.

The FMCG and retail sector is heavily reliant on water infrastructure throughout its interconnected and complex supply chains. Our Aquanomics model predicts the sector could face total output losses of just over USD 1.1 trillion by 2050 due to water risk.

Water-related disasters can cause direct damage to infrastructure and assets, including buildings, inventory and machinery. It can also cause disruptions to supply chains through transport infrastructure such as roads and railways and compounding delays in global shipping caused by geopolitical uncertainties.

Our Aquanomics model predicts the manufacturing and distribution sector will be the most heavily affected by increasing water risk, facing total output losses of just over USD 4.2 trillion by 2050.

Manufacturing plays a fundamental role in the supply chains of all other sectors. Water scarcity can restrict industrial production processes while flooding and storms can cause direct damage to assets (buildings, inventory and machinery) and energy supply. Water risk also impacts distribution. For example, extreme drought can cause disruption to waterborne transportation while flooding and storms can disrupt road and rail infrastructure.

The economic risks associated with water across various sectors show the interconnectedness of water dependency in business operations, no matter what industry. To learn more about the economic impact of water and potential losses by 2050, download the full Aquanomics report now.