Compound Climate Hazards Pressure Beverage Giants

When investors assess physical climate risks, the focus often narrows to a single hazard, be it floods, heat waves or droughts.¹ Far from being isolated, these hazards often converge with compounding effects.² For instance, in the mineral-water industry, a combination of flooding, extreme heat and prolonged drought may push producers toward controversial — and at times illicit — filtration practices just to maintain supply.³ This underscores the need for investors to broaden their lens beyond a siloed risk analysis to capture the systemic, cascading nature of physical climate threats. 

When ‘natural’ isn’t natural: Climate pressures and Nestlé’s water crisis

In January 2024, an investigation in the French media found that Nestlé S.A. and Sources ALMA used carbon filters, ultra-fine micro-meshes and ultraviolet light in their natural-mineral-water facilities.⁴ Under European Union law, natural mineral water should be unaltered.⁵ In 2024, Nestlé Waters admitted to employing prohibited purification methods and reached an agreement with French regulators, committing to a EUR 2 million settlement in lieu of facing court proceedings.⁶ The company, whose brands include Perrier, Contrex, Vittel and Hépar, defended these practices as necessary to manage bacterial and chemical contamination risks. It also destroyed three million bottles of Perrier after its well in France was contaminated with bacteria amid heavy rains linked to storm Monica.⁷  

Other beverage companies, particularly producers of bottled water, may face challenges similar to those encountered by Nestlé. Scientific research has noted that global warming leads to greater intensity and duration of droughts, greater water vapor stored in the atmosphere and more intense storms. All of this increases the risks of flooding, particularly over continental areas (depending on the season).⁸

Data as of Aug. 28, 2025. The chart shows six water-beverage companies from the MSCI ACWI Investable Market Index (IMI) with the highest average hazard percentile for the current exposure to fluvial flooding, extreme heat and water scarcity as defined by “MSCI GeoSpatial Asset Intelligence, Corporate Asset Locations (Module 1),” “MSCI GeoSpatial Asset Intelligence, Physical Risk - Hazard Exposure (Module 2a)” and “MSCI GeoSpatial Asset Intelligence, Physical Risk - Financial Impact (Module 2b)” methodologies. How to use this chart: Use the dropdown menus to change the metrics for the X-axis and/or Y-axis. Hazard percentiles represent the current average hazard level of a given physical hazard a company's assets are exposed to, expressed as a percentile in comparison to companies in the MSCI ACWI Index. Higher values represent higher risk exposure. Average annual loss represents the expected relative average annual loss (percentage value) of a company's economic output as a result of business interruption and/or asset damage caused by impacts from a given physical hazard. Higher values represent higher expected losses. Source: MSCI ESG Research 

We compared Nestlé’s peers’ exposure to fluvial flooding, heat and drought, as these factors may exacerbate the type of contamination risks Nestlé faced. We identified five other companies, specifically Suntory Beverage and Food Ltd., Danone SA, PepsiCo Inc., The Vita Coco Company Inc. and Tata Consumer Products Ltd., that may be exposed to similar risks and thus potential reputation or regulatory scrutiny.

Data as of Aug. 28, 2025. The chart shows six water-beverage companies from the MSCI ACWI IMI Index with the highest average hazard percentile for the current exposure to fluvial flooding, extreme heat and water scarcity as defined by “MSCI GeoSpatial Asset Intelligence, Corporate Asset Locations (Module 1),” “MSCI GeoSpatial Asset Intelligence, Physical Risk - Hazard Exposure (Module 2a)” and “MSCI GeoSpatial Asset Intelligence, Physical Risk - Financial Impact (Module 2b)” methodologies. How to use this chart: Use the dropdown menus to change the metrics for the X-axis and/or Y-axis. Hazard percentiles represent the current average hazard level of a given physical hazard a company's assets are exposed to, expressed as a percentile in comparison to companies in the MSCI ACWI Index. Higher values represent higher risk exposure. Average annual loss represents the expected relative average annual loss (percentage value) of a company's economic output as a result of business interruption and/or asset damage caused by impacts from a given physical hazard. Higher values represent higher expected losses. Source: MSCI ESG Research

As seen in the chart above (top-right quadrant), Vita Coco and Tata have the highest combined exposure to extreme heat and drought, relative to their MSCI ACWI Index peer group. Heat and drought specifically have been shown to lead to significant water-quality effects (including increased risk of toxic contaminations) depending on the characteristics of the water body and catchment. Given that droughts are increasing in frequency and severity due to climate change, this could have significant consequences for affected mineral-water manufacturers.⁹

By contrast, PepsiCo and Danone have the highest exposure to fluvial flooding. The nexus between surface flooding, groundwater contamination and negative gastroenteric consequences is relatively understudied. Research suggests, however, that such a relationship may exist, which would require the introduction of additional precautionary measures (such as drinking-water testing and treatment)¹⁰ and could challenge mineral-water companies that intentionally avoid such treatment for marketing and regulatory reasons. 

However, unlike peers such as Suntory, PepsiCo and Danone have more water-efficient processes, which may mitigate some of the risks of contamination as part of a holistic water-management approach. For example, Danone employs a strategy that aims to “reduce, reuse, recycle and reclaim” the water at all of its production sites by 2030, and has worked with farmers to reduce farm-level water contamination. PepsiCo also has a comprehensive approach to become net water-positive by 2030, which includes practices that improve efficiency (particularly in high-risk areas) and improve the health of local watersheds.  

Data as of Aug. 28, 2025. The chart shows six water-beverage companies from the MSCI ACWI IMI Index with the highest average hazard percentile for the current exposure to fluvial flooding, extreme heat and water scarcity as defined by “MSCI GeoSpatial Asset Intelligence, Corporate Asset Locations (Module 1),” “MSCI GeoSpatial Asset Intelligence, Physical Risk - Hazard Exposure (Module 2a)” and “MSCI GeoSpatial Asset Intelligence, Physical Risk - Financial Impact (Module 2b)” methodologies. How to use this chart: Use the dropdown menus to change the metrics for the X-axis and/or Y-axis. Hazard percentiles represent the current average hazard level of a given physical hazard a company's assets are exposed to, expressed as a percentile in comparison to companies in the MSCI ACWI Index. Higher values represent higher risk exposure. Average annual loss represents the expected relative average annual loss (percentage value) of a company's economic output as a result of business interruption and/or asset damage caused by impacts from a given physical hazard. Higher values represent higher expected losses. Source: MSCI ESG Research 

With ongoing climate change potentially leading to more volatile weather and heightened contamination risks, shareholders of exposed industries such as bottled water may benefit from scrutinizing how their portfolio companies approach this evolving threat. Beyond simple hazard exposure, investors may need to assess whether firms have credible water-management strategies, transparent reporting and the operational resilience to withstand compounding climate shocks. Those that fail to adapt may face rising regulatory, reputational and financial pressures.