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What's the No. 1 Risk You Face in the Next 10 Years?

By Sara Murphy – Mar 9, 2014 at 12:35PM

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While the top risks, in terms of likelihood and impact, are financial, water scarcity has climbed into the Top 5 in the last three years.

Two scary things happened recently that should keep you up at night. Last month, Chipotle Mexican Grill (CMG -0.51%) warned us in its annual report that extreme weather -- like the recent drought in California -- might make avocados prohibitively expensive, and that Chipotle might in that case be forced to eliminate items like guacamole from its menu. And this week, Alpha Natural Resources (NYSE: ANR) agreed to an unprecedented $27.5 million fine and an additional $200 million in dedicated wastewater treatment investment after years of dumping toxic mining waste into the rivers and streams of five states. The common element in these stories is water, and it's about to be a huge problem for all of us if we don't get serious soon.

Source: Shutterstock

Guacamole elegy?
It's not quite time to mourn guacamole, no matter what the Internet hysteria would have you believe. Nothing has changed on the Chipotle menu... yet. But the shift in risk perception is an important one. Here's what Chipotle actually said:

Weather related issues, such as freezes or drought, may also lead to temporary spikes in the prices of some ingredients such as produce or meats. For instance, two years of drought conditions in parts of the U.S. have resulted in significant increases in beef prices during late 2013 and early 2014. Increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients. 

In the severe drought currently parching California, avocados have been one of the harder hit crops, which is why concern has fallen on guacamole. The fact that Chipotle is properly evaluating water risks throughout its value chain is far more important, as most companies are failing in this regard.

Energy companies are doing especially poorly at evaluating their water-based risks, which is unfortunate because energy and agriculture are more dependent on water than most other industries. Energy companies -- particularly American ones -- are woefully ignorant of and unprepared for the hurt that's coming when the water trickles off. Investors know it, which is why they've been filing shareholder resolutions with the likes of beleaguered Alpha Natural Resources to shape up and make a plan for dry times.

Watch the video below for more detail about the looming water crisis.

Sara Murphy has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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