Long Island, N.Y.: Water being poured into a glass from a faucet on Long Island, New York on Oct. 4, 2022. (Photo by Steve Pfost/Newsday RM via Getty Images)

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Climate-related disruptions to the Earth’s water cycle are fast becoming an environmental and an economic risk, according to a new analysis.

A new report by the Asian Infrastructure Investment Bank warns climate change is destabilising the natural cycle, which continuously moves water around the planet, through rivers, oceans and the atmosphere.

According to the study, the water cycle underpins biodiversity and ecological resilience, economic performance, and social stability.

And any disruption will amplify floods, droughts, and water-quality shocks while increasing uncertainty around water availability and have profound regional and local impacts.

“The hydrological cycle itself functions as infrastructure,” the report states

“Because economies depend on stable water flows, disruptions in the water cycle increasingly translate into economic risk, affecting agricultural productivity, energy generation, urban resilience, and fiscal stability.”

The report says water stress affects sovereign credit ratings for lower-middle-income economies.

It claims a 10%-point increase in water stress reduces credit ratings by nearly one notch.

It adds water scarcity is uneven and worsening, with 31% of the global population now living in water-stressed basins and major food-producing being exposed.

The Asian Infrastructure Investment Bank’s chief economist Erik Berglof said the water cycle should be invested in and supported, in an interview.

Berglof added it is also important to take a systematic approach to water management, both at an international, national and regional level, as many water basins span different countries.

“The main message is we should do everything we can to keep water in nature, whether it’s in a forest, wetlands or reservoirs,” he told me.

“This way we can build resilience and prevent catastrophic floods and help countries depending on water to get it on a more regular basis, making the whole the whole water cycle more resilient.”

Berglof cited the issues in India, which is home to 18% of the world’s population, but only 4% of the world’s water, and faces significant climate-related challenges, including shifting monsoons and the warming of the Indian Ocean.

“A lot of infrastructure which was built there to harvest the monsoon are not in the right places, are not sufficiently strong,” he added.

“This is just one example, which has major implications for one of the most important countries in the emerging world.”

The bank’s assistant chief economist and co-author of the report, Jang Ping Thia, said another global warming impact is that the ground in many areas can no longer retain water as well, because the ground is warmer and the water evaporates into the atmosphere.

Thia added this situation is leading to “huge changes in the distribution of the water cycle” and contributing to the loss of forests and wetlands in various regions around the world.

“As average temperatures go up, it is becoming very difficult for the land inland to hold water,” he told me.

“South Asia is the most water stressed region at the moment,” he told me. “Another region that I think is going to be tremendously water stressed is Central Asia - Mongolia, Kazakhstan, Tajikistan, Uzbekistan, and Turkmenistan.”

Thia said many of the most water-stressed countries are the largest “virtual water” exporters, meaning they produce goods that use up a lot of water, which exacerbates local water stresses.

"It just creates a situation whereby people are exporting highly water-hungry goods. There's no incentive to shift the structure of the economy, or to conserve the use of water.

"Pricing is a very sensitive issue in many of these areas because of the political economy. But something needs to be done over the long term, otherwise it's a negative economic feedback loop.”

Dr. Joanne Wood, impact fellow at Green Futures Solutions, University of Exeter said changes to the hydrological cycle are currently disproportionately affecting those in the Global South, where social and economic marginalisation limit adaptive capacity and resilience, in an email.

Dr. Wood added similar shocks are now beginning to hit industrialised nations, who are underprepared for the changes ahead, such as crop failures already affecting food supply shocks.

And EY’s global climate change and sustainability services leader, Alexis Gazzo said water risk is moving from “nice-to-have” sustainability debate to a tangible resilience issue, in an email.

Gazzo added even in advanced economies, water availability is emerging as a real constraint, and businesses are being pushed to evidence their climate and nature resilience.

“The priority for businesses is to understand their exposure to these risks and to build credible action plans,” he said.