A Comment on “Water Stress: A Global Risk Analysis for Financial Markets”


Angelo Calvello, PhD
Publisher of the Journal of Environmental Investing

Mr. Bokern’s original essay provides investors with what I believe to be the first robust and practical framework for the analysis of water risk. Many investor-friendly “tools” tend to be purely descriptive (e.g., Ceres Water Risk Toolkit) and offer no holistic model for estimating and predicting an investment’s or portfolio’s true exposures to water risk. (In fact, such tools seem to expose investors, especially pension funds, to fiduciary risk because they identify a material risk but fail to offer a means of properly measuring the risk. This is like a fiduciary knowing that it has exposure to U.S. interest rates but no understanding of convexity or duration.)

Importantly, Bokern’s research moves beyond these pedestrian approaches and even the current scientific method of using drought indices to estimate water risk and offers a methodology for determining hazard, exposure, and sensitivity for publicly traded companies on a global scale. While Bokern’s methodology must be identified as a work-in-progress, because of the exigency of water risk, it is of immediate value to investors since “by taking into account locations and revenue distribution for every single company, the model is able to provide comparisons for water risk exposure between sectors and individual companies.”

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