Heavy rainfall in Spain led to floods in October, causing over 10 billion euro in damages. This is yet another manifestation of the global water crisis, which poses an economic risk to investors. Risk management increasingly involves steering towards sustainability, primarily driven by economic incentives.
Companies with production facilities in the Valencia region, such as Swiss train manufacturer Stadler, experienced supply chain disruptions due to the floods, resulting in production delays. Stadler’s stock dropped by 11 percent following a revised outlook for 2025 and 2026. Spanish energy company Iberdrola faced a devastated power grid and deployed 500 employees to repair the damage.
Beyond the immediate costs of extreme weather events, companies are grappling with challenges such as water shortages caused by persistent droughts. According to the World Meteorological Organization, the situation is urgent: 45 percent of the world’s rivers reached historically low water levels in 2023, threatening the operational continuity of businesses. Best practices now include operating more efficiently and making business processes more resilient to extreme weather.
For Pauline Grange, global equities portfolio manager at Columbia Threadneedle, the trend is clear: sustainability progresses where the economic need is most pressing. In an interview with Investment Officer, Grange explained that in ESG investing, the focus is shifting from sustainability alone to economic necessity—a more powerful driver. «Even (sustainable) companies must be financially self-sufficient,» she notes.
Subsidies vs. regulation
Governments acknowledge the water crisis and play a key role. Subsidies can support the adoption of sustainable technologies until economies of scale reduce costs—a strategy primarily used in the US. Europe, however, focuses on stricter regulations. Grange observes: “Although sustainability is less central on the US political agenda, Americans successfully combine sustainability and entrepreneurship through subsidies, thanks to a more favourable business climate.”
This does not mean US companies can ignore sustainability rules. “In the United States, the risk of legal action discourages companies from breaching regulations, as this could lead to irreparable financial and reputational damage,” emphasises the portfolio manager.
While subsidies can be helpful, they must not distort market mechanisms. Grange highlights the artificially low water prices caused by significant subsidies. “Because water is seen as a basic necessity, it is practically free. The result is careless water usage and substantial waste,” she explains.
Additionally, water companies struggle to invest in infrastructure improvements due to low revenues. “Globally, about a third of water volumes are lost to pipeline leaks, inefficient usage, and outdated technology. In cities like London, where water scarcity might not be expected, this can lead to shortages. A more realistic pricing structure, directly impacting consumers, would not only encourage more mindful water usage but also enable companies to invest in a sustainable and efficient infrastructure.”
Crisis as the best catalyst for change
A crisis often proves the most effective catalyst for structural change. Grange cites Cape Town, her hometown, as an example. A few years ago, a water crisis forced residents to use water more consciously and sparingly. “Both residents and businesses devised innovative solutions, many of which became permanent. This effect was amplified by the government’s inadequate response to the crisis,” she explains.
Cities are becoming increasingly vulnerable to climate change due to urbanisation, which intensifies pressure on water resources and infrastructure, just as weather patterns grow more extreme and unpredictable. In Valencia, outdated infrastructure worsened the impact of the recent disaster. “The growth of urbanisation places additional strain on urban water networks,” says Grange. “That’s why we invest in companies developing innovative solutions, such as rainwater management systems and smart water technologies, to better prepare cities for these challenges.”
More energy usage, more water demand
The growing demand for energy inevitably brings more water-related challenges, particularly from data centres that consume large quantities of water for cooling. “The US›s leadership in data centres underscores the necessity of a robust infrastructure to ensure sufficient water supply for these heavy users,” says Grange.
Companies developing innovative water solutions for data centres play a crucial role here. “For example, major public cloud providers like Microsoft and Amazon are increasingly investing in water management solutions to make their data centres more water-efficient.”