Impacts of Water Stress on Physical Assets Using REITs as a Case Study

15 Pages Posted: 12 Aug 2020

See all articles by Andre Bertolotti

Andre Bertolotti

BlackRock, Inc

Tianyi Luo

World Resources Institute

Yuxi Suo

BlackRock, Inc

Date Written: July 15, 2020

Abstract

We find evidence that water stress of physical assets is an additional component of risk for investors. The World Resources Institute (WRI) found that 1 in 5 people are living in areas at high risk of water scarcity. Recently, the WRI Aqueduct 3.0 model provided new data and insights for measuring water stress globally. We leverage this framework to understand the connection between water risk exposure and financial risk using the global Real Estate Investment Trust (REIT) sector as a case study. We first develop a definition of water stress that incorporates changes in water supply and water demand. Next, we geolocate over 84,000 REIT properties and map them to over 590 publicly listed REITs. Finally, we study the impacts of water stress exposure on REIT financial measures. We find evidence that water stress is connected with market risk and financials of REITs. Using WRI water stress projections for 2030, we find that REITs will experience a substantial increase in exposure to water stress.

Keywords: Climate risk, water stress, climate impacts

JEL Classification: G10, Q25, Q51, Q54, R11, R30

Suggested Citation

Bertolotti, Andre and Luo, Tianyi and Suo, Yuxi, Impacts of Water Stress on Physical Assets Using REITs as a Case Study (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3651583 or http://dx.doi.org/10.2139/ssrn.3651583

Andre Bertolotti (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Tianyi Luo

World Resources Institute ( email )

10 G Street NE Suite 800
Washington, DC 20002
United States

Yuxi Suo

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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