Environmental trends could have significant financial repercussions for the $40 billion food and beverage industry in South and Southeast Asia, according to a report released today by the World Resources Institute (WRI) and HSBC’s Climate Change Centre of Excellence.

“The food and beverage industry is particularly vulnerable to climate change and water scarcity in Asia. The region is already struggling with increased water demand because of population and economic growth,” said Dana Krechowicz, a WRI associate and co-author of the report.

The industry’s dependence on agriculture, aquaculture and water resources for business operations makes it particularly susceptible in a region where climate change is projected to severely intensify water scarcity problems.

WRI’s report, Weeding Risk, examines the impacts these growing trends will have on seven economically important food and beverage sub-sectors in six countries – India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

The report’s findings suggest that the edible oils, starches, and sugar sub-sectors will be most vulnerable to increasing agricultural prices, while aquaculture, poultry, and dairy will be vulnerable to disease and contamination. As part of the study, HSBC’s analysis on an Indian sugar company shows that a sugarcane price increase of 1 percent can lead to a decline in profit of up to 10 percent.

The risks identified in the report are already affecting some food and beverage sectors. Drought during the monsoon season in India caused sugar prices to reach a 28-year high in 2009. This is particularly troubling considering experts estimate that by 2020, the demand for water in India will exceed all its sources of supply.

“Water stress is set to have a growing role in shaping the sector,” said Nick Robins, head of the Climate Change Centre of Excellence at HSBC. Roshan Padamadan, a HSBC analyst at the Centre stated, “The strategic choices made by a company along its value chain can mitigate these risks, making it important for investors to understand its sourcing, inventory, and operational performance.”

Weeding Risk is the first report in a three-part series. The second report, Over Heating, analyzes the power sector in South and Southeast Asia. Surveying Risk, Building Opportunity, assesses the environmental risks to commercial real estate in the region.

More than half of existing and planned power plants in South and Southeast Asia are located in areas currently considered water scarce or stressed, according to findings in a report released today by the World Resources Institute (WRI) and HSBC’s Climate Change Centre of Excellence.

The new report, Over Heating: Financial Risks from Water Constraints on Power Generation, analyzes water-related risks facing thermal and hydroelectric power plants in India, Malaysia, the Philippines, Thailand and Vietnam. These plants require large amounts of water for cooling and generation.

WRI mapped the water stress level across the region and the location of more than 150 existing and planned facilities of the largest power-generation companies in the region. The analysis found that water shortages pose the highest risk for power generation companies in India.

“Water-related risks are hard to quantify, yet they present a growing risk to power generation,” said Piet Klop, acting director of WRI’s Markets and Enterprise Program. “The next step is to take our analysis to specific companies and their exposure and response to those risks. On the upside, investors have investment opportunities that can come from better understanding water-related risks.”

In India, approximately 62 percent of existing and 79 percent of planned thermal and hydroelectric power plants of the three largest power generation companies (NTPC, Tata Power, and Reliance Infrastructure) are located in water scarce or stressed areas. The country’s water demand is expected to outgrow supply by 50 percent by 2030 and estimates by the World Bank indicate that all available water supplies will be exhausted by 2050.

“The power sector investors and analysts are making long-term bets on water that, in the future, might no longer be reliable,” said Amanda Sauer, a senior associate at WRI. “They need to start assessing their exposure to water-related risks when considering long-term investment strategies.”

The report’s findings suggest that project delays due to water-permitting problems and general shortages may be costly. As part of the study, HSBC’s analysts found that a 12-month delay in commercial operation could lower the rate of return on investment by 1.5 percent. Furthermore, each 5 percent drop in power production due to water shortages could result in nearly a 0.75 percent drop in the project’s rate of return.

“The projected expansion of power generation - whether coal, hydro or gas – is exposed to growing water stress,” said Nick Robins, head of the Climate Change Centre of Excellence (C3E) at HSBC.

Roshan Padamadan, a HSBC analyst at the Centre said, “Investors need to understand how companies are managing these risks, including the specific steps to optimize water use at the plant level.”

Over heating is the second report in a three-part series. The first report, Weeding Risk, looks at climate change and water scarcity impacts on the food and beverage sector in India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. The third report, Surveying Risk, Building Opportunity, assesses environmental risks to commercial real estate in the region.

Stressed water supplies in the Southeast United States could be relieved by introducing energy and water conservation policies outlined in a report released today by the World Resources Institute, Southface and Southeast Energy Efficiency Alliance.

Freshwater in the Southeast U.S. The above chart, based on U.S. Geological Survey data, shows that about 65 percent, or nearly 40 billion gallons, of water is withdrawn each day for thermoelectric power in the Southeast United States. Water and Watts, the third report in a three-part series about energy issues in the region, notes that approximately two out of every three gallons of freshwater withdrawn in the Southeast U.S. are sent to thermoelectric power plants, which are mostly coal-fired and nuclear. These plants require about 40 billion gallons of freshwater each day - nearly equal to the total daily freshwater withdrawals required to meet public supply needs for the entire U.S.

“Reducing electricity demands is not only critical to addressing our energy challenges, but also to meeting regional water needs,” said Ben Taube, executive director at the Southeast Energy Efficiency Alliance and a co-author of the new report. “Lawmakers at the federal, state, and local levels should consider policies that create incentives for the efficient use of both water and energy, especially in light of recent droughts.”

Water availability has become a more common source of conflict between states in the region. Alabama, Florida, and Georgia have fought over control of the Apalachicola/Chattahoochee/Flint River Basin and similar issues arose in North and South Carolina over the Catawba River.

Looking ahead, population growth in the Southeast could lead to a 30 percent increase in thermoelectric power generation by 2025. Without policy action to encourage efficiency and water-efficient power production, this higher electricity demand could further exacerbate water scarcity problems.

“Building more thermoelectric power plants that run on nuclear and coal is simply not sustainable,” said Dennis Creech, executive director at Southface, another report co-author. “Fortunately, we see that efficiency upgrades and conservation efforts can reduce demands on both energy and water resources, while saving consumers money on utility bills.”

The report notes that the average household in the region is spending about $250 each year on energy to heat the water they use for dishwashers, clothes washers, showers, and other needs. Upgrading just half the households in the Southeast with WaterSense labeled faucets or faucet aerators, for one example, could save residents an estimated $40 million on their water bills and another $80 million on their energy bills.

Any water efficiency improvements also help reduce demands on city water and wastewater treatment facilities. The energy needed to operate these facilities can amount to as much as 30 percent of a city’s total energy bill.

“These relationships between energy and water should not be overlooked in the Southeast,” said Eliot Metzger, an energy expert at WRI and co-author of the report. “Policymakers should take steps to promote water and energy savings, starting with near-term actions that make good economic and environmental sense.”

Policy and investment opportunities highlighted in the report focus on realizing both energy and water benefits. To start, state regulators must evaluate the impacts of new electric power supplies upon water, and prioritize options, including efficiency, with minimal or no water requirements.

Strong leadership is also needed with energy and water efficiency requirements for public buildings. Several states - including Alabama, Florida, North Carolina, and Virginia - have policies that encourage efficiency in state buildings. Additional policies and procurement guidelines for high efficiency products, like those bearing the ENERGY STAR logo or the U.S. EPA’s WaterSense label, can lead to additional energy, water and cost savings.

Financial incentives can help promote options like solar water heaters, which use heat from the sun to provide 40 to 80 percent of water heating needs. These systems can save homeowners $150 or more in energy costs each year. State tax incentives and additional federal tax credits can help encourage more homeowners to install solar hot water systems.

Finally, states and utilities can also lead information and awareness campaigns to help educate homeowners and businesses about the connections between energy and water use.