Water scarcity is emerging as a material threat to global trade, supply chains and investment, with companies anticipating about US$397 billion in financial impacts from water-related risks, according to a new report by global environmental disclosure nonprofit CDP.
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CDP said droughts can disrupt critical trade routes, while water risks in suppliers’ operations can leave companies exposed even when their own facilities are not directly affected. Against a backdrop of geopolitical tensions and supply chain disruptions, governments and companies are reassessing where strategic industries should be located and how critical goods are sourced. But while production can be moved, the water resources on which industries depend cannot, CDP said.
“Across sectors ranging from artificial intelligence (AI) and advanced manufacturing to critical materials, water is increasingly a strategic business issue with direct implications for growth and competitiveness,” said Sherry Madera, chief executive of CDP.
“As companies make decisions about investment, sourcing and expansion, there is a fundamental constraint that cannot be solved simply by moving a factory. You can relocate production but you cannot relocate a river basin,” she continued.
The report found that about US$45 billion of the anticipated impacts are expected to occur upstream in supply chains, reflecting companies’ exposure to water risks beyond their direct operations.
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As companies make decisions about investment, sourcing and expansion, there is a fundamental constraint that cannot be solved simply by moving a factory. You can relocate production but you cannot relocate a river basin.
Sherry Madera, chief executive, CDP
Firms have already reported US$1.4 billion in current financial impacts from water-related disruption, according to the report, Water, Trade and Capital: How Water is Reshaping Geopolitics, Supply Chains and Financial Risk. The analysis draws on water disclosures from more than 6,500 companies.
More than a third of companies that disclosed to CDP lack a process to systematically assess and manage water risks. Among companies reporting at least one water-related risk, 21 per cent have no water-risk assessment process.
“Water risk is deeply material to many sectors but is not yet fully priced into capital markets,” said Joe Ray, CDP’s Head of Water. “That means water resilience will increasingly become a competitive differentiator for firms in water-dependent industries.”
“Companies that act to mitigate their exposure and can signal this to the markets will be better positioned as water stress intensifies,” he added.
Water risks travel through trade
Around 60 per cent of the water-related risks facing suppliers of companies based in wealthier countries are found in developing countries, according to CDP. As much as 60 per cent of global freshwater flows cross national borders, while only around one-third of countries have formal agreements governing shared water resources.
The CDP report cited candy giant Mars as an example of a company mapping water use across its global agricultural supply chains. The company identified priority crops sourced from water-stressed basins in Spain, India and Pakistan. In Spain’s Guadalquivir River basin, Mars reported risks including higher input costs and reduced availability of quality rice.
Another case study in the report is Indian conglomerate Adani, which reported that 12 of its operational sites are in water-stressed regions and identifies freshwater availability and groundwater regulation as material risks. Adani’s investments span manufacturing, mining and data centres.
An Adani disclosure to CDP says restrictions affecting groundwater could disrupt some of its operations and force the company to rely on more expensive alternative water sources, increasing operating costs and reducing efficiency.
CDP also found that some 39 per cent of companies report withdrawing and divesting from areas of high water stress, up from 27 per cent a year earlier.
Water stress meets a widening investment gap
Water stress is also reflected in gaps in basic water and sanitation services. At least 26 per cent of the world’s population still lack safely managed drinking water services, while 41 per cent lack safely managed sanitation services. Only 56 per cent of domestic wastewater is safely treated worldwide, according to UN-Water data.
Investment in water infrastructure and management remains below estimated needs. Global investment was about US$300 billion a year in 2022, compared with an estimated US$700 billion annual financing gap needed to achieve water security by 2030, according to Organisation for Economic Co-operation and Development (OECD) estimates. If investment rates do not increase, cumulative financing needs for water-related infrastructure are projected to reach US$6.7 trillion by 2030 and US$22.6 trillion by 2050.
The economic implications extend beyond water services. Underinvestment in water security could result in economic losses equivalent to an average of 8 per cent of global GDP by 2050, according to the Global Commission on the Economics of Water, with losses of 10 per cent to 15 per cent in low-income countries.
In the Philippines, rising demand, population growth, urbanisation, and El Niño-related droughts are increasing pressure on water resources. The country could face a water crisis by 2040, according to the OECD’s latest Strengthening Economic Regulation of Water and Sanitation Services in the Philippines paper, while achieving universal access to water and sanitation in the archipelago by 2030 is estimated to require about US$18 billion (P1.07 trillion) in investment between 2020 and 2030.
For companies, visibility into water-related risks remains incomplete. In 2025, 78 per cent of companies disclosing on water to CDP mapped or planned to map their supply chains, up from 70 per cent a year earlier. Three-quarters of those companies, however, mapped only as far as direct suppliers, according to CDP.
“Water disruption in one location can travel through supply chains into distant markets, while efforts to secure key industries may run into scarcity and pollution challenges. The pursuit of strategic autonomy therefore does not remove physical dependency – but it does change where that dependency lies and who must manage it,” the CDP report concluded.
