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The CDP's Water Report Offers a New Paradigm for Water Management

The results of the 2011 Carbon Disclosure Project (CDP) Water Disclosure Global Report were released on November 16. The findings provide valuable insight as to how companies are addressing near- and long-term water-related risks and opportunities.

Selected companies from the FTSE Global Equity Index Series (Global 500) were invited to respond to the second annual CDP Water Disclosure information request because they operate in sectors which are water-intensive or exposed to water-related risks. This year the response rate for the Global 500 increased to 60 percent from 50 percent in 2010, representing 190 out of 315 companies which were sent the questionnaire.

The key results of the Global Report are summarized below:

The majority of responding companies have identified water as a substantial risk to their business. Fifty-nine percent (113) of respondents report exposure to water-related risk and over one-third of respondents have already experienced recent water-related business impacts, with associated financial costs as high as US$200 million.

Sixty-four percent of all risks in direct operations and 66 percent in the supply chain are reported to have the potential to impact business within the next five years.

Almost two-thirds of companies have identified water-related opportunities and most opportunities reported are near-term. Sixty-three percent (119) of respondents identified opportunities including cost reductions associated with increased water efficiency, revenue from new water-related products or services, and improved brand value.

Seventy-nine percent of the opportunities reported are expected to impact business within the next five years.

Water-related issues receive less attention than climate change at the board level. Fifty-seven percent (109) of Global 500 respondents report board-level oversight of water-related policies, strategies or plans. In contrast, 94 percent (371) of Global 500 respondents to the Investor CDP information request earlier this year reported board-level oversight of climate change.

The reason as to why water-related issues are given lower priority than climate change issues is unclear, especially as the majority of reported risks and opportunities are near-term.

Respondents' ability to provide water-related usage data has improved. The proportion of respondents reporting water withdrawals (95 percent, 181) and recycling/reuse data (58 percent, 111) has increased since 2010.

The ability to measure and report water accounting metrics is essential for better management of water resources and demonstrates an increased awareness of water issues among respondents since 2010.

Energy companies report high levels of risk and low levels of board-level oversight. The Energy sector has the lowest response rate (47 percent, 25 respondents) of all sectors and the lowest number of respondents that report board-level oversight of water-related policies, strategies or plans (36 percent, 9 respondents).

A low level of board oversight is surprising since 72 percent (18 respondents) of Energy respondents report exposure to water-related risk compared to an average of 59 percent (113 respondents) across all respondents.

It is clear that water is a strategic resource for most global businesses. Effective management of this resource requires an understanding of water risk and resultant business risk (operational, regulatory and reputational).

However, it is about more than understanding risk. Water stewardship requires engagement with stakeholders to collaboratively manage water as a shared resource; it is not possible to address the challenges posed by water scarcity alone.

The need to engage with other peers and other sectors, non-governmental organizations (NGOs), communities, and governments to develop broad watershed-level approaches to managing water is essential.

Water reporting and the development of stewardship programs are also driving innovation. We are witnessing the creation of a new paradigm for water management that includes initiatives such as improved water data acquisition and analytics, precision agriculture, improved water efficiency, addressing water losses from pipeline leakage, energy-efficient water treatment technologies and a move to extract energy and nutrients from wastewater.

[Author's note: Deloitte Touche Tohmatsu Limited (DTTL) is one of the principal sponsors of this project and Deloitte Consulting LLP supported CDP in analyzing the data and developing the contents of the report.]

Water pipe photo via Shutterstock.

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