Water scarcity slowly edges up the boardroom agenda

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Nearly a quarter of the world's largest companies believe issues related to water could restrict their growth in the coming years, but a large number are still failing to report on the threat, according to a new study by CDP.

The NGO surveyed listed firms and found that a third of respondents expect water constraints to be felt in the coming years, while 68 percent of the 174 Global 500 companies that contributed to the survey believed exposure to water risk could result in a substantive change in their business, operations or revenue.

More than 850 risks were water-related reported, ranging from failing to provide products to shutting down operations as a result of water scarcity, to being unable to expand operations. Nearly half of respondents said they expected water issues to affect expansion plans in the next three years.

"Water is an essential resource for any business," said Paul Simpson, chief executive officer at CDP. "The potential for water-related problems to damage brand value or limit corporate growth is increasingly understood."

The report comes in the same week as a NASA scientist warned that the threat to the world's water security is far greater than previously thought. Jay Famiglietti, senior water scientist at the California Institute of Technology, wrote in the journal Nature Climate Change that aquifers under farmland in China, the U.S., Australia, India and the Middle East are dangerously overused.

The CDP report details how some companies, such as Diageo, H&M, Merck and Unilever, are evaluating how water availability and quality affect their business, with the importance of water resources gaining resonance in the boardroom. The survey found that ultimate responsibility for water issues lies at board level for 62 percent of respondents, up from 58 percent in 2013, while 90 percent of companies are integrating water into their groupwide business strategies and 82 percent are setting goals and targets to reduce consumption.

CDP also found that three quarters of companies report that addressing the risks related to water stress can open up opportunities to cut costs or boost revenues. For example, chemicals giant BASF predicts $1 billion of sales from water saving, recycling, reuse and drinking water treatment products through to 2020, while Cisco is saving $1 million a year by using less water as a result of a change to one of its soldering practices.

Despite these findings, 42 percent of Global 500 companies called on by the institutional investors that back the CDP to disclose information related to water issues failed to do so, a number that has remained fairly static over the last year. In addition, only 38 percent of companies are assessing how water risks might impact both their own operations and their supply chains, CDP said, while 60 percent do not require key suppliers to disclose water risks. And the report warns some large companies with potentially huge water footprints, such as ExxonMobil and Nike, are not disclosing information on water risks.

The energy sector has the lowest level of water risk disclosure, with a response rate of 42 percent amongst the companies surveyed, despite firms in this sector reporting the second highest levels of exposure to water risk.

The relatively low reporting rates appear at odds with shareholder demands for greater transparency relating to corporate climate risks and supply chain vulnerabilities. The number of investors pressing for corporate accountability on water through CDP has risen 300 percent since 2010 with 573 investors supporting the information requests this year, representing some $60 trillion in assets.

"We live in a time of unprecedented demand for water and have seen the number of investors seeking accountability from companies on this issue through CDP rise more than fourfold in just four years," said Simpson. "It is of grave concern that such a significant group of companies is failing to communicate management of water risks to their shareholders through our global system."

This article originally appeared at Business Green.

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