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Corporations, industries and non-governmentalorganizations have become increasingly concerned with growing water risks inmany parts of the world. Most of the focus has been on water scarcity andcompetition for the resource between agriculture, urban users, ecology andindustry. However, water risks are multi-dimensional. Water-related hazardsinclude flooding due to extreme rainfall, persistent drought and pollution,either due to industrial operations themselves, or to the failure ofinfrastructure. Most companies have risk management plans at eachoperational location to address these risks to a certain design level. Theresidual risk may or may not be managed, and is typically not quantified ata portfolio scale, i.e. across many sites. Given that climate is the driverof many of these extreme events, and there is evidence of quasi-periodicclimate regimes at inter-annual and decadal timescales, it is possible thata portfolio is subject to persistent, multi-year exceedances of the designlevel. In other words, for a multi-national corporation, it is possible thatthere is correlation in the climate-induced portfolio water risk across itsoperational sites as multiple sites may experience a hazard beyond thedesign level in a given year. Therefore, from an investor's perspective, aneed exists for a water risk index that allows for an exploration of thepossible space and/or time clustering in exposure across many sitescontained in a portfolio. This paper represents a first attempt to developan index for financial exposure of a geographically diversified, globalportfolio to the time-varying risk of climatic extremes using long dailyglobal rainfall datasets derived from climate re-analysis models. Focusingon extreme daily rainfall amounts and using examples from major miningcompanies, we illustrate how the index can be developed. We discuss howcompanies can use it to explore their corporate exposure, and what they mayneed to disclose to investors and regulators to promote transparency as torisk exposure and mitigation efforts. For the examples of mining companiesprovided, we note that the actual exposure is substantially higher thanwould be expected in the absence of space and time correlation of risk as is usually tacitly assumed. We also find evidence for the increasing exposureto climate-induced risk, and for decadal variability in exposure. Therelative vulnerability of different portfolios to multiple extreme events ina given year is also demonstrated

A water risk index for portfolio exposure to climatic extremes: conceptualization and an application to the mining industry