Case study by Peter van der Werf, Robeco

Robeco researched whether increases in the price of water, which would better reflect its real economic value, would have a material impact on food and beverage companies and their credit ratings.

Background to the Corporate Credit Water Risk Tool

Our credit team collaborated with the Natural Capital Finance Alliance to develop a Corporate Bonds Water Credit Risk Tool (Water Credit Risk Tool) to integrate the financial risk exposure of water scarcity into standard financial models that assess corporate credit strength. The tool quantifies corporate exposure to water stress and the potential impact on a company fs credit ratio, and integrates water stress factors into credit assessment. Focusing on water-intensive sectors (food and beverage, mining and power utilities), it identifies highly water-dependent companies in water-stressed locations and quantifies the potential impact of water scarcity on their creditworthiness.

Independent variables:

  • Water stress . water withdrawals (demand) versus water availability (supply) at any 10km by 10km area of the globe
  • Population - number of people within 50km of the location

Dependent variables:

  • Agricultural value
  • Domestic supply value
  • Human health impacts
  • Environmental impacts within a given location

The tool compares the credit ratios before and after the analysis, adding the cost of water representing the total economic value (TEV) of water. TEV attempts to capture the full economic value of water, including external benefits that water provides to the local society, ecology and private benefits enjoyed by water consumers. TEV is calculated for each geographic location. Water used by a company at a specific location is valued by considering the alternative uses for the water at that location.

Impact of ESG integration: Heineken

We used the Credit Water Risk Tool to assess how Heineken’s credit ratio would be impacted. For Heineken, the tool set the water shadow prices at 3.42$/m3 for 2010 and 3.79$/m3 for 2040, marking a moderate 10.8% rise between 2010-2040 as water stress and population are projected to rise in many locations.

We modelled three potential scenarios:

  • Exposure to current water stress when firms pay the 2010 shadow water prices between 2014-2016.
  • Exposure to current water stress when firms pay the 2040 shadow prices in 2014-2017.
  • Company does not face the shadow price of water. Scenarios one and two model the impacts of shadow water prices on the financial ratio projection for Heineken compared to scenario three.

As shown in Table 7, the net debt/EBITDA ratio of Heineken does not appear to be significantly exposed to the internalisation of shadow water prices.

net ebitda

While credit ratios are important, they are one of many components in credit rating analysis. For example, in terms of business risk analysis, beverage companies fall between mining and utilities companies, given their low level of cyclicality and competition. In the case of Heineken, the contribution of water risk analysis to fundamental analysis conducted by credit analysts was neutral.

The financial ratios of Heineken and other food and beverage companies may not change greatly due to smaller water consumption figures compared to mining and utilities companies assessed for the tool, as well as the global and regionally diverse nature of their business. This averages out the impact from additional expenditures in specific regions, where the shadow price is significantly higher, into a global average shadow price that only has a mild impact on Capex.

For example, when comparing Heineken with mining company Antofagasta, the water consumption of Antofagasta was significantly larger and its operations in Chile are concentrated in high water scarce areas. Our credit analysts therefore found the contribution of water risk analysis to fundamental analysis of Antofagasta to be negative. At the Los Pelambres mine, the requirement for a feasibility study to adopt a desalination plant for water delivery sets Antofagasta three years back before mining operations can begin. This reduces the internal rate of return of the project.


Through engagement, we established that Heineken has a progressive and proactive approach to water management. In February 2015, the Credit Water Risk Tool results were presented to the Heineken Director of Global Sustainable Development and the Head of Water Management. Heineken already conducts water risk assessments using tools developed by WWF and Aqueduct. However, they focus on water stewardship from the perspective of protecting its license to operate. Future increases in water prices, the basis of the Water Credit Risk Tool, is a factor it does not expect to materialise soon. The Water Credit Risk Tool provides a long-term risk perspective. At present, companies including Heineken are not concerned about increasing water prices.

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    Investor guide on water risks in agricultural supply chains

    March 2018