Capital Market – Based Corporate Water Risk Assessment: Improved Application of waterBeta® on Japanese Corporations
As a resource that is often scarce in many regions, water has been identified as a key risk factor in corporate development. Generic financial indicators – such as stock price and financial beta – are not able to show idiosyncratic risks caused by water-related issues. Thus, failure to consider water risks and relative indicators may lead to investment loss. The existing waterBeta® index was developed by Equarius Risk Analytics to assess and price idiosyncratic corporate water risk. It takes capital market indicators, corporate financials and water data into account.
This study will focus on ten selected Japanese corporations and calculate their waterBeta®. Improvement in calculation includes usage of company-specific water data instead of industry average, as well as more insight into huge corporations with multiple lines of business. Correlation between month-specific water risk and price/sale performance was also observed to assess the robustness of waterBeta®.
Data are collected through Bloomberg, Factset, D&B Hoovers and public corporation financial and sustainability reports. Data verification and processing are needed before applying waterBeta® formula. Calculation was done by collaborative effort. Interpretations and suggestions were derived after calculation.
Muhan Chen, MS (SusSys)