Preqin ESG Solutions 44 Water metrics An increase in global temperatures causes precipitation 12 changes , leading to erratic rainfall patterns and shifts in agricultural seasons. This can lead to droughts and tsunamis that decrease the amount of available freshwater. Simultaneously, water use has been increasing by about 1% per year since the 1980s. This makes water security a top priority for our adaptation to climate change. The TCFD identi昀椀es physical related risks, associated with water withdrawals, including the risk of drought, scarcity of fresh water, higher incidence of interstate con昀氀icts, and the aftermath of involuntary migrations. Water rationing, water pollution, societal unrest, and breach of environmental regulations are all classi昀椀ed by the TCFD as transition-related risks linked to water withdrawals. If not properly managed, physical related risks and transition-related risks could lead to compliance, regulatory and operational costs. Making the water withdrawal metric a part of your strategy will enable you to brace for times when water is a scarce resource and 昀椀nding alternative water sources is disruptive and costly. In addition, ine昀케cient water management is likely to become a reputational risk. The calculation of a water withdrawal proxy for each portfolio company starts with four elements: employee count data; a relationship between employee count and water withdrawals; knowing the industry in which the company operates; and the location of its headquarters. On average, water withdrawals grow with the size of a company, as measured by the number of employees. Our employee count data for private markets comes from a third-party provider that has run a large-scale web crawling operation for the past decade. The original sources of these data are government 昀椀lings, online professional pro昀椀les, resumes, and job postings. Our provider leverages these sources to cross-check the delivered data for inaccuracies and inconsistencies, using cutting-edge statistical methods to eliminate sampling biases or reporting delays. We approximate the relationship between the size of a company and water withdrawals, assuming the latter are proportional to the number of employees. Although this can be a conservative assumption in some cases, it works well for the majority of the sample. 12 De昀椀ned by the World Bank as the ratio of GDP to water withdrawals. ↗ Back to Contents