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We are fishing and eating from our oceans unsustainably, eating down the food chain

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Photo: Alex Hofford

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We have spent the last few days contemplating with marine experts the real and terrifying challenges our oceans face and what we, as a philanthropic foundation, can do to stimulate urgent thought and action largely absent in Asia around the consumption and trade in fish.

While there is growing attention from governments (local, national and regional bodies), NGOs and philanthropic funders in the U.S., Europe, Australia and New Zealand, despite being an important consumer and producer, there has been little attention paid to the challenges in Asia, where an estimated 40 percent of major fish stocks are overexploited or collapsed.  At the same time, as a region where poor coastal populations are largely dependent on fisheries for their only source of protein and employment, the issues are particularly urgent.

It’s worth reminding ourselves of just how significant those challenges are and why we in Asia should particularly take note.

Oceans cover 70 percent of our planet and are indispensable to life. They generate 50 percent of the oxygen we breathe, absorb warming greenhouse gases, help regulate our climate and are a critical source of food for us all, but most importantly the 1 billion of our world’s poorest for whom fish is their only source of animal protein.

Yet as we have written about here and here, we are depleting, polluting and warming our oceans at unprecedented rates. We are not caring for our greatest resource in the rush to take more and produce more. While population growth has averaged 1.7 percent each year over the past 50 years, with greater global affluence, rates of fish consumption are increasing at an annual rate of 3.2 percent, according to the FAO’s 2012 State of the World’s Fisheries and Aquaculture. How will it be when our current population of 7 billion reaches an expected 9 billion by 2050?

Over the past 50 years we have consumed an estimated 90 percent of the ocean’s big fish, encouraged by $27 billion each year in misguided government subsidies for fuel or boat construction offered to the industrial-scale fishing fleets that have led the devastating global scramble to harvest, according to a Pew Environment Group report. Estimates are that about half the world’s wild capture production comes from the smaller coastal fisheries that can be just as destructive, usually are unregulated and yet are a vital source of employment and protein.

The total number of fishing vessels in the world in 2010 is estimated at about 4.36 million and again it’s worth noting that Asia has the largest fleet, accounting for 73 percent of the world total, according to the FAO.

World per capita food fish supply increased from an average of 9.9 kg in the 1960s to 18.4 kg in 2009, and likely 18.6 kg in 2010 when all the numbers are in. Of the 126 million tonnes available for human consumption in 2009, Asia accounted for two-thirds of which 42.8 million tonnes was consumed outside China (15.4 kg per capita).

China, which is expected to pull an additional 300 million people out of rural poverty and into relative urban affluence over the next two decades, has a long way to go. Already over the past 50 years, that country’s share in world fish production rose from 7 percent to 35 percent in 2010, largely fueled by growth in aquaculture there, while fish consumption per capita rose to 31.9 kg in 2009, with an average annual rate of growth of 6 percent between 1990-2009. China is also the world’s largest single exporter, responsible for 12 percent of world trade by volume.

China now produces more than 60 percent of the world’s aquaculture by volume, while Asia as a whole accounts for 89 percent of global volume.  This is not, however, taking pressure off our oceans as many people seem to believe. fishmeal itself contains fish and for the more expensive fish the conversion rates are not good. World aquaculture production reached an all-time high in 2010 of 60 million tons, meaning we now farm about half our global consumption.

This massive and growing consumption has meant that most of the stocks of the top ten species, which account for about 30 percent of world marine capture fisheries production, are fully exploited and have no potential for increases in production. Our fishing capacity, meanwhile, is estimated to be as much as two to four  times that needed to harvest the sustainable yield catch from the world’s fisheries.

Meanwhile, not only are we emptying our oceans of life, by overfishing, we are killing what’s left with our bad terrestrial habits.

Acidification and the accompanying ocean warming are continuing apace as our marine life absorbs carbon dioxide and other greenhouse gases emitted by our factories, power plants and transport sector. This has been devastating to our coral reefs, the habitat for 25 percent of our marine species.

Humans are also responsible for a wide assortment of pollutants from oil spills to plastic waste to industrial and municipal effluent, to agricultural runoff from fertilizers that has created whole coastal dead zones.

And I could go on about Illegal, Unreported and Unregulated Fishing, which is an industry unto its own and about which not enough is known but its links to human trafficking, drugs, and terrorism finance have been sporadically documented. With lack of attention to fisheries in Asia and close to zero regulation, this is a particular challenge in terms of even beginning to think about how to stimulate action.

Still, it’s not all gloom and doom – at least in Europe, the U.S., Australia and new Zealand, where NGO pressure and governments (both local and national, as well as regional bodies) have started to focus on the myriad challenges.

According to the FAO report, good progress is being made in reducing exploitation rates and restoring overexploited fish stocks and marine ecosystems through effective management. In the United States of America, 67 percent of all stocks are now being sustainably harvested, while only 17 percent are still overexploited. In New Zealand, 69 percent of stocks are above management targets, reflecting mandatory rebuilding plans for all fisheries that are still below target thresholds. Similarly, Australia reports overfishing for only 12 percent of stocks in 2009. There is also growing EU and USA action around IUU fishing.

But where is Asia in this equation – China, southeast Asia, Japan and India, which together consumed two-thirds of the world’s fish, farm more than 80 percent and export a large chunk to the rest of the world. On marine issues, both governments and NGOs are largely silent, with the exception of the creation of marine protected areas which in concept are important but reality need to be better conceived with proper fisheries management, governance, linkages and adequate funding for monitoring and enforcement.

The reality exists that none of the Asian nations have adequate fisheries management plans, import or export regulations or reliable stock assessments, to their own detriment. IUU fishing is rampant. Yet, fisheries are a vital source of employment and food for the region. Food security and potentially even social stability are at stake.

The question we have been asking ourselves – beyond those provoked by the challenges above – is: What role should a significant global trader such as Hong Kong play in this equation?

Once a fishing village with a booming fishing industry that sustained our appetite for highly commercial species such as snapper and grouper producing 90 percent of the fish we consumed, Hong Kong now imports 90 percent of what it consumes from 140 nations globally. The lack of fish in our oceans caused the government to buy out the once substantial trawling fleets and close Hong Kong waters to commercial fishing.

Despite the declining productivity of our own seas, our appetite for fish, particularly endangered luxury species, has only increased with our greater affluence. In 2009, an average of 71.6 kgs of seafood was consumed per person. That’s 3.9 times higher than the global average and up from 9.9 kg in the 1960s.

So the question remains: should not Hong Kong, a significant consumer of seafood and as such a contributor to global ocean challenges not act now to help save our seas? The key to keep our oceans from emptying completely will be for governments to adopt policies that encourage sustainable consumption and to regulate the fishing and seafood-related industry more carefully.

Reprinted from the South China Morning News, January 16, opinion written by Sophie Le Clue, ADMCF’s director of environmental programs:

In one sense, 2011 was a good year for sharks. The movement in Asia against consuming shark fin gained momentum against a
backdrop of new legislation to ban the trade in California as well as several Canadian cities. In a domino effect, shark sanctuaries were declared worldwide, covering thousands of square kilometers.

In China, the business community also rallied against shark fin. To date, 142 business leaders including chairmen and chief
executives of leading companies such as Lenovo, Haier and China Merchants Bank pledged not to eat it, while hotels and clubs have committed to not serving the infamous soup.

On the government side, in 2011 45 members of the Chinese People’s Political Consultative Conference signed the “Motion on
Development of Regulations on Prohibiting Shark Fin Trade”. Some members of the National People’s Congress also signed the
motion, which will be considered by the government later this year.

Meanwhile, the Hong Kong and Shanghai Hotels Group’s surprising and insightful move to ban the product across all outlets, including its famed Peninsula hotels, was perhaps a fitting end to the year.

Despite these moves, there is a long way to go. There are enormous challenges to implementing regulatory controls and many shark populations globally remain endangered, some threatened with extinction in the near future.

As a result, eyes are now firmly on Hong Kong, the centre of the global shark fin trade and itself a driving force in declining shark
populations.Yet it seems resolute in enabling such ecologically important endangered species to be traded with little regulatory control.

Approximately 10,000 tonnes of shark fin from millions of sharks are imported into Hong Kong every year with virtually no regulation as to species. According to some estimates, this equates to around half of the global trade.

To provide context: of the 507 shark species, only 256 have been assessed by the World Conservation Union (IUCN) to determine their conservation status and of these, 56 per cent, or 143 species, have been identified as threatened with extinction, either now or in the near future. Many of these species are freely traded in Hong Kong.

Last year, questions by legislators on the topic of shark fin met with the standard response: that the government adheres strictly to Cites (the Convention on International Trade in Endangered Species of Wild Fauna and Flora) requirements.

Quite why this prevents the government from regulating trade in endangered species not under Cites remains to be seen.
The paradox, however, is startling. Cites was drafted as a result of a resolution adopted in 1963 at an IUCN meeting and came into force as an international agreement in 1975.

By placing trade restrictions on species at risk, it aims to ensure that the international trade in wild animals and plants does not
threaten their survival. Yet it only includes three species of shark, despite valiant efforts to introduce several others in 2010,
when countries with vested interests in the trade, such as Japan, reportedly bargained with fellow signatories to ensure that highly lucrative shark species – albeit critically endangered – were not included in the convention’s regulatory appendices.

Science and sustainability, the cornerstone of conservation, clearly gave way to commercial interests. For sharks at least, Cites is failing. So when an administration such as Hong Kong hides behind its Cites’ commitment in response to questions about the shark trade, despite the convention’s obvious failings, we know we are in troubled waters.

We can only hope that the next chief executive will have more foresight. Hong Kong remains a gateway to the shark fin trade in
Asia; with a little vision it could make eating shark fin history and have a major impact on an issue of global significance.

This is what the air should look like in HK but rarely does Photo by Ella Smith

Hong Kong finally has found its voice amid government inaction to  clean our air and protect our health. And long may it last – at least until we have real action to address the pollution.

Newspapers this morning featured banner headlines on air pollution, including the SCMP’s  “Clean-Air Targets Don’t measure Up” and then inside, “Gasp it’s Worse Than we Thought.”

Yesterday, the government said it would toughen its clean-air targets for the first time since 1987, but only marginally, and admitted they will still fall far short of World Health Organization standards.

And this four-and-a half-years after first engaging a consultant to review air quality objectives then launching a six-month public consultation that ended in late 2009. The environment secretary sat on the recommendations until yesterday and they were announced unchanged – by the consultation or time.

The new objectives impose tougher limits on the atmospheric concentration for seven pollutants including sulfur dioxide, nitrogen dioxide, carbon monoxide and lead.

For the first time the city also will measure airborne particles smaller than 2.5 micrometres in diameter, known as PM2.5. These are more harmful than the larger particles currently measured.

The government apparently also has identified 22 measures to help achieve the new standards, which are to be introduced over a three-year period after 2014. This will allow infrastructure projects to proceed without delay.

Thus the government, in reality, will allow our air to be made even dirtier while it finishes some mammoth construction such as the Hong Kong-Zhuhai-Macau bridge and a third runway at the airport.

Oh, and the steps to be taken apparently will extend the life expectancy of the average person in Hong Kong by one month.

Secretary for the Environment, Edward Yau, was quoted in the South China Morning Post as saying, “We have to understand that the ultimate WHO guidelines are a distant target” and pointing to regional pollution as the principal source of pollutants.

Yet 2007 research by Alexis Lau from the HK University of Science and Technology and Civic Exchange, “Relative Significance of Local Vs. Regional Sources: Hong Kong’s Air Pollution,” showed that 53 percent of the time the pollution that affects us most is locally generated by buses, trucks, shipping and power plants.

The basic, undisputed message for a long time has been, Hong Kong can do much to clean up its own air and improve the health of its residents.

Despite this, little has been done in recent years, despite urging from Clean Air Network, Civic Exchange, Friends of the Earth and many other environmental groups.

And herein lies the paradox: The HK government speaks and acts as though we are a developing nation, yet HK is one of the world’s richest cities. The government sits on reserves estimated at US$80 billion.

We are so rich in fact that last year the government announced that it would give a cash handout to each adult permanent resident (even those living abroad and those who patently did not need the extra money), of HK$6,000, or US$700. That massive handout cost the government HK$37.98 billion that certainly could have been used to better effect to clean our air.

Meanwhile, Roadside pollution levels reached a record high last year. The number of days that pollution was rated “high” hit 20%. That is five times more than in 2005. And, embarrassingly, the HK government is clearly playing catch up to Beijing, which in response to an online campaign earlier this month said it would provide hourly updates of PM2.5 measurements.

Clearly gone are the days when Beijing looked to Hong Kong for direction and innovation.

Meanwhile, the Civic Exchange yesterday said a revamped environmental index run by Hong Kong University researchers showed that air pollution here is more harmful than previously thought, costing HK$40 billion annually, up from previous estimates of HK$16 billion.

The number of premature deaths per year over the past five years should also be revised upward to 3,200 from 1,000, according to the Hedley Environmental Index. This, of course, is not information that the HK government is gathering.

The sad reality is that Hong Kong’s air has been deteriorating steadily over the past 20 years with almost no action by government to alter the trend.  Pollution now poses a serious threat to public health and we should be angry, very angry.

Forest Impact Bonds:

Lisa Genasci —  January 4, 2012 — Leave a comment

We have been thinking a lot about Social Impact bonds and how the concept might apply to conservation finance, which is something about which we ponder a great deal.

Why not a Forest Impact Bond, issued against promised aid streams from sovereign development banks wanting to mitigate climate change and/or promote forest conservation?

These could work in circumstances where communities are key to protecting High Conservation Value forest.

FIBs would be focused on impact-driven community development (schools, livelihoods, health, education) but linked also to real conservation outcomes.

Time is slipping as we try to establish the best way to protect ourselves at scale from climate change, manage and protect our forests for future generations.

The multiple challenges around forest conservation is something we’ve written about previously in this blog here and here.

In essence, the problem is how to compensate governments and landholders for the huge rewards they reap cutting trees from native tropical forests; how to balance development with conservation.

Since 57 percent of the world’s forests are located in developing countries, it is hard to make the economic argument that these areas should not be developed for the benefit of the national population.  Indeed, timber revenues represent the major, sometimes only, export commodity of a country.

The Commission on Climate and Tropical Forests has estimated  that 17 percent of greenhouse gas emissions – an amount equal to the transportation sector – are from deforestation.

At the same time, the scale of financing required to halve deforestation will reach US$30 billion annually by 2020, the U.S.-based commission estimated in the same report.

Only turning to the global capital markets will provide sufficient funding to meet the challenge deforestation presents today.  That strategy could include the use of bonds, which would allow the desperately needed investment at scale.

Communities and Livelihoods the Key to Conservation

Key to this discussion is that not only do governments and landholders need to be compensated for not chopping forests for timber, but local livelihoods are also often linked to forests.

Nearly 90 percent of the 1.2 billion people living in extreme poverty worldwide depend on forests, which provide them with building materials, food, coffee, cocoa, medicinal plants and income from other sources.

Without access to the forests not only do many of these people lose livelihoods but they also may lose their crops to droughts or floods as climates change with deforestation.

Thus communities living in and around forested areas are key to their protection.

Still, even with access to forests, local populations who face the immediate need of supporting their families often don’t recognize the value of conserving forests for the longer term because they cannot meet their immediate needs for food, housing, clothing and education, among others.

Thus, local communities need both education on the value of long-term forest conservation to their own lives (livelihoods, water etc) and help establishing alternative and sustainable income sources.

At the same time, battling to defeat poverty, poor nations argue they cannot be expected to forfeit income from economic activities that lead to deforestation, particularly since there are global  benefits from developing world forest services – carbon, water etc.

They have argued collectively that if global powers want to preserve the rainforests and their natural services provided then those must be paid for.


Rainforest Bonds Not a New Conversation

Indeed, for many years now there has been talk of rainforest bonds, which would help pay the large upfront capital expenditure required to invest in development, livelihoods, conservation to maintain the forests.

Under conventional thought, either forest carbon revenue or other sources of income such those generated by sustainable timber, agriculture or ecosystem service markets (water, biodiversity for example,) would repay investors.

But the conversation around REDD carbon has stalled with regulatory uncertainty. Additionally, in Asia certainly, we are a long way from any scalable ecosystem markets, while the significant upfront investment needed to promote agriculture as an alternative or to build local livelihoods to protect forests is just not available philanthropically.

And that’s just it…the bond conversation has gone on for years with significant players like the Prince’s Rainforest Trust and others eventually pulling back given the difficulties in identifying revenue streams that would work.

Turning to Forest Impact Bonds

So why not step back entirely from the conversation around how to make forests pay and look instead to the large sums promised by sovereign development banks at Copenhagen (US$4.5 billion) and other aid that has yet to find a home for want of knowledge of how to invest those funds with surety and with impact.

And that’s not surprising. Over the past two decades, substantial funds have flooded into Indonesian conservation  (usually to secure national parks or protect wildlife and its habitat) without corresponding transformational change. Over the same period, deforestation has only accelerated, fueled by burgeoning consumption, population explosion and massive urbanization.

So the problem remains, how to ensure that limited funding for conservation is spent with measurable and significant impact? How to balance development and conservation and raise the funds from global capital markets to pay for both?

Indeed, we must increase the availability of performance-linked finance to protect forests for local communities and local governments, in order to maintain them for global biodiversity and as carbon sinks.

In 2007, a similar discussion emerged in the UK around improving social outcomes and reducing uncertainty of funding for social services.

Shortly thereafter, London-based Social Finance introduced the concept of social impact bonds, which target funds to specific projects with measurable results.

If the identified targets are reached, the UK government saves on social programs and those savings are used to repay bond investors, in certain cases with interest. If targets are not reached, bond investors lose out as they would in any junk bond investment.

Turning to the U.S, in last year’s  budget speech, President Obama announced that he had set aside US$100 million for social impact bonds and at the same time two Boston-based companies have recently been established to apply the UK social impact bond concept to the U.S. context.

Why could this innovative approach to generating social impact in the UK and the U.S. not work also to protect forests in Indonesia, targeting communities and livelihoods but at the same time generating extra and measurable impact in conservation?

Given the argument above, and the lack of current appetite for REDD+ and other forms of eco-securitisation backed by forest assets or credits, might we then apply the social impact bond example to community development initiatives in a country like Indonesia?

In this scenario, international government funds, funds from multi-laterals with an interest in combating climate change and conserving  forests for future generations pool funds in an SPV that are then allocated to community development initiatives with specific parameters and measures of impact.

The key would be to persuade the local government to join what would essentially be billed as a development initiative but with additional conservation benefits.

The SPV funds would be available to repay investors in the event that the community development programs, livelihood initiatives, the conservation targets achieve desired results. In this way, the pooled funds are used only if they have been effective and only after impact has been achieved and quantified.

Country funds would likely have to be established separately, with their own fund administrators (local country officials?)  and project monitors.

An initial pilot would likely include just one country – Indonesia perhaps – and one specific target: perhaps livelihoods and education around several conservation areas.

For in-country implementing partners we could draw on local NGOs to support conservation (research and protection) and identify appropriate targets. Microfinance institutions could support business initiatives where appropriate and rural development organizations would help build agricultural businesses that local communities in Indonesia want to generate income.

Legal organisations would need to be employed to help sort out land-titling to establish a legal basis to land ownership. Education NGOs could be employed to boost local knowledge around conservation, while healthcare providers could support rural health development.

This would then be associated by local communities, along with improved education, for example, with conservation of their local forests.

So rather than trying to pry an uncertain financial return out of forest services or REDD+ (although if these markets develop in the future, certainly these could be added to SPV funds) we are trying  to achieve only effective allocation of government/multilateral resources  and measurable impact.

At the same time, however, there could be a return on investor depending on the effectiveness of the programs., while a tranche structure with different risk/return profiles could be used to simultaneously appeal to both groups.

The difference with the UK Social Impact Bond, of course, would be the potential for shared savings. Although it would be important to have local governments as key participants, it is unlikely their own development investments would make this worthwhile.

Who would buy Forest Impact Bonds?

There is growing interest on the part of institutional investors in markets where there are environmental and social as well as financial returns or where there are at least screens for negative impact.

According to Eurosif, total SRI assets under management increased dramatically from €2.7 trillion to €5 trillion, as of December 31, 2009. This represents spectacular growth of about 87% since 2007.

The sense is that when environmental social and governance issues start to affect share price or impact bottom lines boardrooms will take note.

Increasingly, SRI is a mainstream criterion in equity analysis and several stock exchanges have launched tradable indices that track SRI companies or ESG alongside financial performance.  And ratings agencies are emerging to rank companies on their ESG performance.

At the same time, part of the consideration around forests is that they have long carried appeal to institutional investors.

According to an article in The Banker from 2007, more than US$30 billion globally is invested in forest assets, although mostly through funds and largely in the US.

These investments generally offer competitive returns with low or negative correlation to traditional asset classes making them a counter-cyclical hedge.

In Summary…

  • A FIB is a contract with the public sector in which it commits to pay for improved environmental and social outcomes
  • On the back of this contract, investment is raised from investors motivated perhaps not only by commercial but also by environmental and social returns.
  • This investment is used to pay for a range of social outcomes such as poverty alleviation of local communities, improved health and education, all tied to and contingent on conservation of an area of high-conservation value local forest
  • The financial returns investors receive are dependent on the degree to which outcomes improve i.e, they may receive part or all of the initial investment back, and in some cases additional financial returns.
  • A FIB shifts emphasis from paying for inputs and outputs to paying for impacts
  • In its purest form, a FIB has a risk profile more similar to an equity investment than a debt investment

Concern is growing globally about water resources and the potential for conflict in regions where they are scarce. But are investors and businesses in Asia adequately factoring water into risk assessments?

A recent Neilson study showed that worry about water shortages has overtaken global warming as the top issue, with 75 percent of respondents identifying this as something they worry most about. That represents an increase of 13 percent over the previous year.

And the concern is not without basis. Worldwide, almost 1 billion people lack access to safe drinking water while 70 percent of industrial waste in developing nations is dumped untreated into waterways, further limiting what is often already stretched supply.

Yet investors and leaders of industry may not be paying attention, considering water challenges simply an environmental problem rather than a fundamental business risk.

In China, the water landscape is particularly stark. We hear much about that country’s economic growth averaging 10 percent over the past 20 years, the massive and wholesale transformation of the economy at rapid pace, but not so much about the horrendous cost to the environment that already weighs heavily on GDP .

We hear much less about the dead and dying rivers, the over-pumped aquifers, the creeping desertification in previously agricultural areas, the thinned soil from over-use of pesticides, the power plants without adequate water to function, the massive and growing health care costs from poisonings and escalating cancer rates.

We hear very little about the growing numbers of protests nationwide linked to pollution incidents.

The government is clearly concerned.  The official response in China has been  a tightening regulatory environment, and a move toward real pricing of the precious resource, or the investment opportunities that an inevitable clean up will bring.

The recently approved, 12th five-year plan for the first time features climate change and energy, sets lower growth targets for the country and favors investment in industries that promote pollution clean up and cleaner processes generally.

Clearly, there are thus significant ramifications across a broad range of industries in China but are investors prepared? Are they staying ahead of the water risk curve, engaging in the due diligence and mitigation efforts needed to survive the inevitable and seismic shifts around water?

China Water Risk (CWR) is ADMCF’s redesigned follow-on from Asia Water Project, the pilot initiative launched 18 months ago to inform investors and companies of both risk and opportunities around water crisis in China.

This initiative, which launches later this month at www.chinawaterrisk.org, is designed to influence capital allocation to industries in China located in water-appropriate regions, with solid mitigation strategies built around water.

A brief portrait of water in China tells the back story.

Per capita global water resources are 6,280 cubic meters on average but people in China have less than 1/3 of that amount at 1.816 cubic meters.

So, the country with 20 percent of the world’s population has access to only 7 percent of global water resources, while an estimated 300 million people in the country are without access to safe drinking water.

And this is not just a problem for rural areas in China. In 2007, research showed that 60% of China’s cities faced water scarcity and 110 cities faced serious water shortages.

Despite already limited access to water in china, horrendous levels of pollutants are allowed to spill untreated into waterways and seep into aquifers from agriculture and industry in China.
Last year, the Ministry of Environmental Protection said serious pollution violations numbered on average 10 every month.
In all, an estimated 90 percent of urban groundwater is contaminated with pollutants and the quality of 40 percent of that is getting worse, according to China’s Ministry of Environmental Protection.

Pollution of groundwater follows from the low urban sewage treatment rate, which was only 73 percent in 2009, according to a recent article in China Business Times. Hundreds of new sewage treatment plants have been built nationwide in recent years and sit idle because of the high cost of operating them.

The Beijing-based Institute for Public & Environmental Affairs in its water pollution map (an inspiration for China Water Risk and a CWR partner) lists hundreds of violations by sewage plants.

According to the Ministry of Environmental Protection, 77 percent of 26 key lakes and reservoirs, 43 percent of 7 major river basins are considered unfit for human contact.  Meanwhile, 19 percent of monitored rivers and basins, 35 percent of lakes are reservoirs are believed unfit even for agricultural or industrial use.

The World Bank has warned of “catastrophic “ consequences for future generations if the government does not act to solve quickly the acute water shortage and pollution problems. The report urged new pricing, management and regulatory strategies.

In China, agriculture has been by far the largest consumer of water at 62 percent, and the largest polluter, with pesticides and fertilizers responsible for about half of contamination of waterways.

With water scarcity becoming more evident, waterways increasingly unfit for irrigation coupled with the fact that China holds only 7 percent of the world’s arable land, food security has by all accounts become of national concern.

Part of the problem around agriculture and food security in China has been that regions south of the Yangtze account for 33 percent of the country’s total farmland and 83 percent of the country’s water resources. North of the Yangtze, however, lies 67 percent of national farmland but only 17 percent of water resources

Exacerbating the problem, the country is the globally the largest consumer of pesticides and this has contributed heavily not only to aquifer and waterway pollution but to depletion of farmlands.

Meanwhile, as environmental and labor regulations tightened in the West pushing up prices at home, Foreign Direct Investment has flooded into China, fueling the factories, building the industry that is now feeding, clothing and housing the world.

Last year, FDI was estimated at $105.7 billion, surging 17.4 percent over the previous year. This is also helping build a huge middle class and affluent consumer market in China that is expected to almost triple to 400 million by 2020.

According to a September HSBC report, already next year China will replace Japan as the world’s largest consumer of luxury items – something unthinkable just a decade ago.

A joint report published in 2007 by the World Bank and the Chinese government estimated the combined health and non-health cost of outdoor air and water pollution at approximately $100 billion a year, or about 5.8% of China’s GDP.

Water pollution, meanwhile, worsens China’s severe water scarcity problems, with the overall cost of water shortages estimated at 1% of GDP.

The weight on economic growth is certainly of concern to Beijing, but equally concerning is the growing discontent in China related to pollution incidents and scarcity. In 2005, the last year for which government figures have been released, there were an estimated 50,000 protests nationwide related to pollution incidents.

This comes in response to significant growth of so-called cancer villages, or clusters of cancers invariably located near heavily polluting factories, fast-growing rates of urban cancers and outbreaks of illness or poisonings related to drinking polluted water.

Many of these protests have been centered around specific polluters and in several instances have forced factories or power plants to close. This then involves not just reputational risk but threatens serious economic losses for polluters.

There are also additional considerations around political risk.  Concern is that as climate change potentially exacerbates the country’s water shortages, the government sees the need to exert further control over domestic water resources with far-reaching consequences.

Of the 261 International rivers globally, 15 originate in China, including the Mekong, Ganges, Brahmaputra and Indus rivers. These international rivers span 16 nations and China has no formal agreements or treaties regarding the use of these rivers with any of its neighbors.

What is patently clear, is that no investor or business leader can step into China without carefully considering the water challenges facing each industry and then positioning to mitigate risk.  At the same time, don’t investors and business leaders want to position themselves to take advantage of potentially huge opportunity?