The Evolution of Water Risk in the Municipal Bond Market
Sharlene Leurig, senior manager of insurance programs at Ceres, discusses how attitudes around water risk have changed since the organization's report was published last October.
By Katie Gilbert
![]()
Municipal bonds are considered by many investors to be one of the safest investment options available. But a report released by Ceres last fall argued that many such bonds have unaccounted-for risks lurking in the water – literally.
The report, called “The Ripple Effect: Water Risk in the Municipal Bond Market,” made the case that investors and credit rating agencies are overlooking profound risks in these investments involving impending shortages in water supply, droughts, surging demand for water, and pollution. In the report, Ceres also introduced a model developed by PricewaterhouseCoopers to assess these risks.
Using this new water-risk assessment model, the report’s writers scored six water utility bonds. The Los Angeles Department of Water & Power’s water system bond earned the title of riskiest, based on tight water restrictions resulting from environmental regulations and drought. The utility’s water bond had been rated AA+ and Aa2 by Fitch and Moody’s, respectively, earlier in the year.
Institutional Investor reporter Katie Gilbert recently spoke with the report’s head writer, Sharlene Leurig, senior manager of insurance programs at Ceres. They discussed how attitudes around water risk have changed since the report was published in October, why rating agencies were heartened by the report’s call to action, and how carbon may lend a helping hand in bringing water risk issues to the fore. ....