Between the lines of the CDP's global water report

Liquid Assets

Between the lines of the CDP's global water report

Water report
Flickr Kevin Dooley

I always look forward to the release of the annual CDP Water Program Report (PDF), having been closely involved with CDP Water Program for several years. While the number of companies responding is modest (this year there were 174), the report provides useful insight into how companies view and manage water-related risks and opportunities.

The good news is the number of investors working with CDP Water Program has increased to 573 (an increase of 318 percent from 2010), and the number of companies “invited” to participate has increased as well.

However, there is reason for concern, as you can see from this recap of the report :

  • 68 percent of respondents report water poses a substantive business risk
  • 22 percent report issues around water could limit the growth of their businesses, and about one-third of these expect constraints to be felt in the next 12 months
  • 40 percent include communities and other water users in water risk assessments
  • 60 percent of the reported risks are physical risks — water scarcity and quality
  • 43 percent believe risks will materialize within three to 15 years
  • 28 percent of respondents conduct a risk assessment at the river basin level
  • 38 percent assess water risk in direct operations and supply chain

My concern is that most companies appear to view water risk in a similar fashion as carbon — reduce your operating footprint and you reduce your risk (the 28 percent conducting water risk at the basin level and the remaining just focused on operations).

Additionally, most companies do not appear to link water risk to their business growth strategy, as only 38 percent of respondents assess water risk in their direct operations and supply chain. (Also note that in the energy sector only 32 percent “have assessed how water challenges may constrain long term — more than 5 years — business growth” and in the Industrial sector 26 percent “have not evaluated how water challenges could affect their organizations growth strategy.”)

While I recognize that the CDP sample size is relatively small, it's telling that a minority of companies seem to understand water risk as a business risk. Water risk is not about corporate social responsibility reporting. It’s about understanding the value of water to your business and how it contributes to your business growth.

Also of concern is that companies are viewing water risk in a silo. Water risk is tied to energy and agriculture. In the United States, about 39 percent of water is used for power and 41 percent for agriculture. The projected increase in U.S. energy demand by 2030 is about 40 percent, which translates to an increase of 165 percent.

Currently about 41 percent of shale gas wells are in water-scarce or stressed areas in the United States. For agriculture, the increase in demand over the next 20 years translates to an increase in water needs of between 70 to 100 percent.

The bottom line:

  • Water risk can’t be managed solely within the fence line. It is a watershed and value-chain issue.
  • Water risk is not a silo issue. It is tied to your energy production and agricultural supply chain, if you have one.
  • If you use water, then your water strategy needs to align and support your business strategy, in particular if you plan on growing in emerging markets.

I remain hopeful as we approach 2015 that we’ll see greater progress in these areas.