Water Risk Modeling: Developing Risk-Return Management Techniques in Finance and Beyond

383 Pages·2023·10.072 MB·English

by  Dieter Gramlich, Thomas Walker, Maya Michaeli, Charlotte Esme Frank

Edited by
Dieter Gramlich · Thomas Walker ·
Maya Michaeli · Charlotte Esme Frank
Water Risk Modeling
Developing Risk-Return
Management Techniques
in Finance and Beyond
Water Risk Modeling
· ·
Dieter Gramlich Thomas Walker
·
Maya Michaeli Charlotte Esme Frank
Editors
Water Risk Modeling
Developing Risk-Return Management Techniques
in Finance and Beyond
Editors
Dieter Gramlich Thomas Walker
Department of Banking & Finance Department of Finance
DHBW-Baden-Württemberg Concordia University
Cooperative State University Montreal, QC, Canada
Heidenheim an der Brenz
Baden-Württemberg, Germany Charlotte Esme Frank
Department of Finance
Maya Michaeli Concordia University
Department of Finance Montreal, QC, Canada
Concordia University
Montreal, QC, Canada
ISBN 978-3-031-23810-9 ISBN 978-3-031-23811-6 (eBook)
https://doi.org/10.1007/978-3-031-23811-6
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Acknowledgments
We acknowledge the financial support provided through the Global Risk
Institute and the Jacques Ménard—BMO Centre for Capital Markets. We
appreciate the excellent copy-editing and editorial assistance we received
from Victoria Kelly, Meaghan Landrigan-Buttle, Miles Murphy, Mauran
Pauvan, and Eimear Rosato.
v
Contents
Introduction
Water Risk-Return Modeling and Management: Threats
and Opportunities 3
Dieter Gramlich, Thomas Walker, Charlotte Esme Frank,
and Maya Michaeli
Frameworks for Water Risk-Return Modeling and
Management
Water Cycle Changes in a Warming World: The Scientific
Background 15
Karsten Haustein and Quintin Rayer
Water: Textile’s Danger—Financial Risks, State of Practice
and Moving Forward 51
Navya Bhayana and Laureline Josset
Financial Risks Due to Residential Flooding: Incorporating
Household Perceptions to Better Understand Behaviors 91
James I. Price and Diane P. Dupont
Water Stewardship—Bridging the Knowledge
and the Financial Gaps 121
Pratibha Singh, Nidhi Nagabhatla, and Karin Kreutzer
vii
viii CONTENTS
A Framework for Global Warming Induced Extreme
Weather and Water Investment Risks 153
Quintin Rayer, Karsten Haustein, and Pete Walton
(Investment) Strategies for Water Risk-Return Modeling
and Management
Measuring Water Risk: The Challenges for Passive Index
Investment 191
Markus Barth
Using the CWR APACCT 20 Index to Re-Calibrate
Chronic Tail Risks and Re-Assess Long-Term Capital
Allocation Decisions Given Rising Locked-In Coastal
Threats 217
Dharisha Mirando, Debra Tan, and Chien Tat Low
Water Neutrality in Investment Portfolios 247
Nadja Franssen
Making Water Count—Integrated Risk-Return
and Knowledge-Based Models for Water Investments 277
Josien Sluijs, Blanca Méndez, and Dieter Gramlich
Water Risk in Real Estate: An Introduction
to the Climanomics Platform 311
Isabelle Jolin and Maya Michaeli
The Water Credit Risk Tool and Corporate Sensitivity
to the Shadow Price of Water 331
Dieter Gramlich and Henrik Ohlsen
Index 359
Notes on Contributors
Markus Barth CFA, is a seasoned investment professional and an index
pioneer. He has designed, developed, and launched hundreds of highly
successful proprietary indices throughout his 30+ year career in the finan-
cial services industry. In June 2019, he founded Anatase Ltd. as an
independent consulting firm in order to provide his extensive expertise in
index development, structured products, and investment solutions glob-
ally. Prior to founding Anatase, he was Global Head of Systematic Indices
at Deutsche Bank and DWS from 2002 to 2019 and Global Head of
International Quantitative Research at Merrill Lynch.
Navya Bhayana is a penultimate year student at the National Univer-
sity of Juridical Sciences, Kolkata, India pursuing law studies on the
Aditya Birla Scholarship. She is working as a Graduate Student Researcher
at the Columbia Center on Sustainable Investment, in close association
with the Columbia Water Center, wherein she analyzes issues related to
water quality reporting and standards in different industrial sectors. She is
intrigued by the measures undertaken by businesses to align their strate-
gies with the SDGs and works toward examining the adequacy of the
reporting frameworks adopted by businesses to measure, monitor, and
disclose their ESG performance.
Diane P. Dupont is a Professor in the Economics Department at Brock
University where she held the Chancellor’s Chair for Research Excel-
lence from 2006 to 2009. The Canadian Water Network, SSHRC, CIHR,
ix
x NOTESONCONTRIBUTORS
Health Canada, Environment Canada, and the Donner Foundation have
funded her work. She works with researchers in other fields, as well as
researchers across Canada, in the United States, England, and Australia.
Her current research program concentrates upon examining ways to
encourage more efficient and sustainable use of water resources both on
the supply and demand side. On the supply side, she is looking at factors
that help to identify which water utilities operate most efficiently and
sustainably. On the demand side, she has undertaken a number of non-
market valuation studies to determine the value of good quality water as
it relates to individuals’ perceptions of the health effects of tap water.
Professor Dupont was the elected Researcher representative to the
Canadian Water Network Board of Directors (2010-2012). She is also
a Member of the Board of Directors for the North American Associ-
ation of Fisheries Economists and served as a Member (and Chair for
one year) of the Scientific Advisory Committee for WorldFish Centre,
Penang, Malaysia. Prior to that, she served as a Member of the Executive
Council of the Canadian Economics Association and as a Member of the
Social Sciences and Humanities Adjudication Committee (Economics).
She has served as an Associate Editor for the Australian Journal of Agri-
cultural and Resource Economics and Society and Natural Resources and is
currently an Associate Editor for the Canadian Water Resources Journal,
Water Resources Research , andW ater Resources & Economics.
Charlotte Esme Frank completed her Bachelor’s degree in the Human-
ities at Carleton University, Ottawa. She holds an M.A. in English
Literature and Creative Writing from Concordia University, Montreal,
where she is a Research Associate at the John Molson School of Busi-
ness. She is currently completing a Ph.D. in English literature at McGill
University.
Nadja Franssen has been working as a Responsible Investment Officer in
the Sustainability and Strategy team at Cardano-ACTIAM since 2020.
Her focus is on the screening of companies and the development of
policies. The emphasis of her work is on water-related risks and opportu-
nities. She recently worked on the update of ACTIAM’s Water Policy and
contributed to the publication of thought leadership articles and reports
on the topic.
Prior to joining Cardano-ACTIAM, she worked as a Portfoliomanager
Socially Responsible Investing at SPF Beheer where she was respon-
sible for the development and implementation of the socially responsible
NOTESONCONTRIBUTORS xi
investment strategy, drafted financial analyses and contributed to the
selection and monitoring of external managers in the field of impact
investing.
Nadja holds an M.B.A. in Finance and Responsible Investment from
the Sustainability Management School in Gland and an M.Sc. degree in
Public Policy and Human Development at the United Nations Univer-
sity—MERIT in Maastricht M.Sc. Public Policy and Human Develop-
ment, Maastricht Graduate School of Governance in cooperation with
United Nations University.
Dieter Gramlich is a Professor of Banking and Finance at DHBW—
Baden-Württemberg Cooperative State University in Heidenheim,
Germany, where he serves as the Head of the Banking Department. He
previously studied at the University of Mannheim and was an interim
professor and Chair of Banking and Finance at the University of Halle.
His research focuses on sustainable finance.
Karsten Haustein is a Research Associate at the Meteorological Institute
of the University of Leipzig, Germany. He is linking extreme weather
events and the loss of biodiversity with human-induced climate change.
One key question he is trying to answer is to what extent observed
changes can be attributed to anthropogenic causes. Previously, he has
worked as a postdoctoral researcher at GERICS (German Climate Service
Center Hamburg) as well as at the Environmental Change Institute (ECI)
of the University of Oxford. At ECI Oxford, he helped in the devel-
opment of the rapid event attribution framework, now widely known as
World Weather Attribution.
Isabelle Jolin (B.Comm. 2018, M.Sc. 2021), a two-time John Molson
School of Business alumna, specializes in residential investments and asset
management at Ivanhoé Cambridge. After completing her undergrad-
uate degree, she began working at Ivanhoé Cambridge while pursuing
a master’s degree in Finance. She now manages a variety of residential
products through portfolios across the United States, notably in New
York City and the Sunbelt. She is very passionate about sustainability,
a central concept in her investment and asset management approach.
Laureline Josset Associate Research Scientist at the Columbia Water
Center, specializes in the quantification of risks due to uncertain climate
and data to inform decisions. Collaborating with actors from govern-
mental agencies, NGOs and advocacy groups, the financial industry, she