The Network for Greening the Financial System published a technical report examining how water scarcity can affect economies, financial institutions and financial systems through human rights law, litigation, water management rules and pollution controls. It identifies growing transition and liability risks as courts expand protections for the right to water, claimants challenge project approvals and governments strengthen or enforce water regulation. Central banks, supervisors and financial institutions should identify, assess and monitor these channels as concrete sources of nature-related financial risk. Litigation can delay, increase the cost of or block water-dependent projects, creating losses and stranded assets for companies and their financiers. The report identifies 30 cases across 14 jurisdictions outside the United States challenging authorizations for activities including mining, oil drilling, thermoelectric plants, dams and data centers. It also warns that regulatory simplification could weaken monitoring, increase physical risks and force sharper policy adjustment later, while fragmented national responses could raise compliance costs. The financial exposure is potentially substantial. More than 19% of the outstanding nominal value of euro area bank lending to nonfinancial corporations, exceeding EUR 4.4 trillion, is extended to sectors exposed to high water scarcity risk under a 100-year drought scenario.

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