Water management risks related to supply and quality issues, as well as climate risks, pose credit challenges across multiple sectors in Asia, according to a new report by Moody's Investors Service.
The report published Wednesday said the risks are higher particularly in parts of South and Southeast Asia, where water scarcity and mismanagement are prevalent.
"Asia is generally more vulnerable to water risks than other regions," says Nishad Majmudar, Moody's assistant vice president and analyst.
"Across sectors, issuers are facing water management issues such as inadequate access to clean or purified water supply, and reputational and regulatory risks related to the downstream effect of water use, including supply, pollution, and sanitation," he noted.
Moody stated the mismanagement of water resources has direct implications on Asia's economic activities, with negative effects across sectors.
"Water-intensive sectors such as mining, agriculture, textiles, semiconductors and hydroelectric and thermal power depend on proper water management for their productivity. For sovereigns, water stress and poor sanitation can weaken their growth outlook, as well as add to fiscal costs and social tensions," noted the report.
It said water management risks also affect financial institutions indirectly since the risks affect the borrowers' creditworthiness. Over time, these risks may bring more impaired assets, increased insurance claims related to issuers' water supply constraints, and tighter regulations in water-scarce regions.
As climate change progresses, water mismanagement will become a greater credit risk. The link between non-climate-related water risks and the effects of climate change will become clearer over time as changing rainfall patterns and drought amplify water scarcity and infrastructure deficiencies said the report.
"These dynamics could intensify geopolitical risks and trade tensions, with negative credit effects," it concluded.