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CDP: At least $77 billion under threat from supply chain water risk

Half of large companies are not addressing water-related supply chain risks despite the potential for huge financial impacts, according to a CDP study.

Hourglass with fresh water dropping to green plant planting on dry land

Source: Shutterstock/Piyaset

At least $77 billion is under threat due to water-related supply chain risk, but half of large corporates are still not working with suppliers to address issues such as worsening water scarcity.

That is the conclusion of a new study of more than 3,000 firms with annual revenue of more than $250 million undertaken by global climate risk disclosure platform CDP, which also warns close to $7 billion is at immediate risk of water-related losses.

The survey found 1,542 companies are inserting water requirements into supplier contracts, collecting water data, raising awareness of water issues or collaborating on innovation. But that leaves around half of the world's largest companies taking no steps to address water-related risks in their supply chain.

The results represent progress on the 1,047 firms which reported that their suppliers must meet water-related requirements as part of their organisation's purchasing process in 2023.

Some 443 businesses are also offering senior leaders incentives to improve supply chain water management, with Coca Cola, L'Oréal and Japanese chemicals giant Kao Corporation offering direct financial incentives to chief procurement or purchasing officers who take steps to tackle water risks.

However, 894 companies from major sectors such as manufacturing, agriculture and transportation — totaling more than a quarter of those quizzed — do not engage with their supply chain on water-related issues and have no plans to do so in the next two years.

A fifth of these companies claimed the issue was unimportant, despite their activities having high water impacts.

Patricia Calderon, CDP's global head of water, said while supply chains are the "knots" tying the global economy together, they are at risk of coming apart rapidly due to climate change and the reckless management of the world's finite resources.

"The data is telling us our water supplies are becoming ever more fragile and the financial toll is mounting up," she said. "It's down to large companies with the biggest water impacts to take immediate action, working with their suppliers to stem the tide of water risk.

"The bar needs to be raised much higher if we want to build strong and effective supply chains, free from serious water risks. Companies should shift their outlook to recognizing the significant opportunities from becoming more water resilient."

The report also warned global water demand is predicted to rise by up to 30 percent by 2050, according to the United Nations, placing increased pressure on complex and interwoven supply chains.

As such, CDP is urgiung companies to better assess supply chain risks and impacts, set global supply chain for water use and management targets, incentivise executives to act, include water in supplier requirements, and engage with, incentivize and support suppliers.

Henk Ovink, executive director of the Global Commission on the Economics of Water, said a "paradigm shift" in the way economic metrics value and govern water was also urgently required.

"Mitigating climate change while adapting for the ever more extreme impacts, ensuring a just energy transition and securing food for all, restoring our ecosystems, reversing biodiversity loss and building inclusive, green and resilient systems," he said. "The key to make all this happen is to view water as a global common good."

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