Water is essential to ecosystems, economies and communities, and the world has been reminded of its importance in recent years. But too much, or too little, water can be catastrophic. Floods in Pakistan and Europe have displaced millions and disrupted industries. Prolonged droughts across Africa, the Americas and Europe have affected agricultural yields and energy generation. Pollution and scarcity have forced cities from Chennai to Cape Town to ration supplies. These are not isolated events. They illustrate how water-related risks, once considered local challenges, can have consequences that extend across economies and borders.
Scientists and international experts are increasingly clear that these events reflect deeper systemic changes. The Global Commission on the Economics of Water has warned that the global hydrological cycle itself is becoming destabilised, with shifting rainfall patterns, intensifying extremes and degraded freshwater ecosystems. An out-of-balance water cycle poses profound risks for societies, economies and the financial system, with impacts that are both immediate and long-term.
The financial community now recognises the seriousness of these risks. Having advanced in their understanding of climate-related risks, central banks and financial supervisors are now widening their focus to include nature, acknowledging that ecosystem degradation can be a financially material risk. Within this broader agenda, water deserves particular attention. It is a finite, non-substitutable resource. It can be simultaneously local in character and systemic in impact. It sustains every sector of the economy, and when freshwater systems fail, the consequences are immediate and significant.
This OECD report shows how financial supervisors and policy makers can use a structured approach to identify and assess water-related risks, and why these risks can only be understood through a broader lens than climate. It aims to equip financial supervisors, central banks and policy makers with a clearer understanding of how water-related risks arise, how they matter for financial stability, and how their analysis can be strengthened. The report is also directly relevant to the water community, supporting more effective engagement with financial institutions and ensuring that systemic risks are better anticipated and managed in an era of accelerating environmental change. The ultimate goal is to better leverage financial supervision to deliver real benefits through improved water security and resilience.
Jo Tyndall
Director of the Environment Directorate
OECD