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World Water Day: Water Risks Carry a KRW 22 Trillion
Financial Impact for Korean Companies

World Water Day: Water Risks Carry a KRW 22 Trillion Financial Impact for Korean Companies

65% of Korean respondents: "Water risks have a significant impact on business strategy and financial planning" Climate change strengthens the case for mandatory corporate water disclosure and stronger government action

March 22 is World Water Day, designated by the UN to highlight the importance of water and to promote sustainable water resource management. As the deepening climate crisis makes extreme events such as water shortages, floods, and droughts more frequent, companies and governments face growing pressure to strengthen their water management strategies. The Global Commission on the Economics of Water (GCEW) has warned that global water demand will exceed supply by 40% by 2030, and that the water crisis threatens an 8% loss of GDP in countries around the world on average by 2050, rising to as much as 15% in lower-income countries. Water risk refers to the possibility that water-related problems — shortages, pollution, floods, and droughts — will threaten a company's operations and financial stability.

Water risks are set to grow in Korea as well. Under the Korea Meteorological Administration's SSP5-8.5 scenario, average temperatures and precipitation are both expected to rise in the second half of this century, with rainfall increasing by as much as 17%, and the vicious cycle of ever more extreme droughts and downpours is likely to continue. Responding to water risk is therefore becoming more important than ever.

Climate change driven by industrial activity; industrial activity threatened by climate change (2023 CDP report)

Korean companies' response, however, remains inadequate relative to the scale of the risk. According to the 2024 CDP response results released by the Korea Sustainability Investing Forum (KoSIF), 103 companies in Korea responded to direct requests from CDP Capital Markets and publicly disclosed water-related information. Of those, 65% said water risks had already had, or would have, a significant impact on their business strategy and financial planning. The potential short-term financial impact of water risk on Korean companies was put at KRW 21.9592 trillion in total.

The sector facing the greatest financial impact from water risk is utilities. Assessments of the financial impact of water risk account for both physical and policy risks, and utilities depend on water at almost every stage of their operations, from cooling power plants to treating municipal supplies and delivering industrial water. A shortage can therefore hit the sector hard — driving sharp rises in operating costs, higher capital expenditure for repairs and replacements, fines and penalties, and the burden of remediation costs — and ultimately disrupt power generation.

The Materials, Consumer Discretionary, and IT sectors are also expected to see growing financial risk from water shortages and supply chain instability. IT in particular consumes vast quantities of water for semiconductor manufacturing and data center cooling, and its consumption is rising further as the artificial intelligence industry expands. Because these sectors are highly exposed to direct financial risks such as higher production costs and process disruptions when water runs short, they need long-term water risk management strategies as well as short-term measures.

The share of water that Korean companies withdraw in water-stressed areas has also reached an alarming level. High water stress describes a situation in which demand for water exceeds supply, constraining its use. KoSIF's analysis puts water stress exposure at 87.5% for telecommunications, 70.3% for industrials, 69.8% for IT, and 53.7% for energy and utilities. International standards classify a water stress ratio above 40% as "high," and most of Korea's major sectors are well beyond that threshold.

(Top) Water stress exposure (%): water withdrawn in water-stressed regions / total water withdrawal (Down) Map from WRI's (World Resources Institute) Aqueduct Water Risk Atlas platform (Korea, June)

June is typically when water stress peaks in Korea. Drought reaches its height just before the monsoon arrives, reservoir levels fall, and water supply drops with them. Climate change has made the timing and frequency of droughts more erratic and harder to predict, complicating water management still further. June is also when agricultural demand is concentrated in the farming season and industrial and household demand climbs ahead of summer. Data from WRI's Aqueduct Water Risk Atlas show that the Seoul metropolitan area, Busan, Gwangju, and Pohang — regions that host Korea's major industrial complexes — all fall within areas rated "High (40–80%)" or "Extremely High (>80%)" for water stress.

KoSIF's analysis shows that the number of directly operated facilities exposed to water risk at Korean companies rose 32% year on year, from 182 to 241, yet spending to manage that risk actually fell. Water risk response costs came to KRW 2.8666 trillion in 2024, down 11% from KRW 3.2305 trillion in 2023 — a sign that companies recognize the risk but have yet to act on it in substance. "Given the impact water risk has on corporate operations," said Nahyun Nam, Senior Researcher at KoSIF, "this is the moment to strengthen long-term water management strategies, not just short-term response spending."

Investor demand for water disclosure, meanwhile, continues to grow. CDP's 2024 report Navigating Troubled Waters found that 1,029 companies received investor requests for water-related data, up 122% on the previous year — evidence that a company's water risk management is no longer treated as a purely environmental matter but as a core measure of its credibility and sustainability.

Global companies are moving to adopt "water positive" strategies — purifying and returning more water to nature than they consume. Microsoft, Google, and other global IT firms are applying the approach to their data center operations to cut water use and build sustainable water management systems. "A growing number of Korean companies, mainly large corporations, are setting water reduction targets, but measures that match the scale of the risk are urgently needed," Nam said. "Long-term water management strategies aligned with global standards are required at government level as well as within companies — through investment and infrastructure improvements, stronger disclosure of water use, and better management of water risk across supply chains."

CDP is a global platform that collects and discloses corporate environmental data, covering ESG information across areas including climate change, forests, water, and plastics. Its official report including Korean data is due in April and is expected to analyze not only how well Korean companies manage water risk but also their strategies on carbon emissions, resource use, biodiversity protection, and other environmental issues. KoSIF serves as the CDP Korea Committee.