Report Finds Current Water Practices May Lead to Risks for Investors
The report indicates 64% of companies expect water risks to impact their business within five years
The CDP Global Water Report 2013 indicates that a misguided approach to water-related risk management has become business as usual at the world’s largest global companies. According to the report, corporate focus is too often directed at reducing water use, which is an inadequate response to increasingly immediate substantive water risks, threatening shareholder value.
Water stewardship is the solution to achieving water security, one of the most pressing issues facing the world today. A significant step change, however, is required if stewardship is to be achieved. CDP, formerly known as the Carbon Disclosure Project, is calling on investors to take a leading role in guiding companies on this issue.
This new report, written by Deloitte, is based on data provided to CDP by 180 companies listed on the FTSE Global 500 Equity Index at the request of 530 investors representing $57 trillion. Companies that use CDP’s water program for reducing risks and capitalizing on opportunities relating to water and are analyzed as part of the report include BP, Bayer, Lockheed Martin, General Motors, Nestle, Wal-Mart and Unilever.
Key findings of the report, titled, “A Need for a Step Change in Water Risk Management,” are:
- • Water presents substantial risk threatening profitability and shareholder security, primarily in the energy, materials and consumer staples sectors. Each company in the sample faces an average of seven water-related risks, with nearly three-quarters (70%) stating that water presents substantive risk to their business. Half have already experienced detrimental business impacts in the past five years.
- • Water risks are increasingly immediate. The percentage of risks that companies expect to impact their business within five years (64%) has increased by 16% in the space of one year and the majority of risks identified in direct operations (65%) and supply chains (62%) are near-term. The most widely identified near-term water risk is water stress or scarcity, followed by flooding and rising compliance costs. Declining water quality, higher water prices and reputational damage are among the other reported risks expected to impact within five years.
- • Corporates wrongly believe that water usage is the primary risk driver. Two-thirds of companies (63%) report targets for their direct operations that largely relate to reducing water use or increasing reuse. Although more than half (52%) source materials or business inputs from regions of water risk, less than two fifths (37%) require key suppliers to measure and manage water risks. Of greater concern, a quarter (23%) of companies do not know if water presents risk to their supply chains. This outdated narrow focus falls short of the required response to the wide range of risks they face.
- • Low level of strategic planning or corporate ambition on key water stewardship metrics raises risk level. Despite increasing recognition that water risks cannot be tackled in isolation, just 6% of companies have targets or goals for community engagement, 4% for their supply chains, 3% for water management and 1% for transparency. Not a single company reports a public policy target and 15% of companies fail to meet water discharge regulations.
“Although we are seeing great strides in corporate ability to identify water-related risks, the approach to managing those risks is misguided. If businesses are to become truly resilient to the growing threats that water poses, they must strive for stewardship,” Cate Lamb, head of CDP’s water program. “A 60% annual increase in companies using our water program is promising. The resultant data we have published today will provide unparalleled insight to investors aiming to seize a leadership position by educating their portfolio companies on this issue.”
The full report can be accessed on the CDP website.