The Pricing of Water Usage

Using Trucost data from 2005 to 2022, we examine the relationship between firms’ water usage and stock returns. Our analysis shows a negative relationship between water usage and excess returns, with high-water-usage firms generating lower returns compared to their industry peers. This effect is stronger in high-water-consumption sectors like mining and manufacturing. We also find a positive link between water usage and operating costs, suggesting that investors view water primarily as an operational expense rather than a climate risk factor. We enhance the understanding of water’s role in sustainable investing and highlight its impact on firm performance across industries.