Investors Get New Tool to Gauge Companies' Water Risks

Investors Get New Tool to Gauge Companies' Water Risks

Construction pool image via Shutterstock

The record drought in Texas this summer underscored the crucial role water plays in keeping the economy afloat. Among other impacts, it has devastated the state's cotton crop, one of the factors that led Gap Inc. to downgrade its annual profit forecast by 22 percent.

Pressure on the world's water supplies will only increase in the coming decades as industry, agriculture and population growth compete for access. Yet few companies talk about how they are managing their water-related risks, which could one day leave investors holding the bag.

Concerned investors received a significant resource today from Ceres, the World Business Council for Sustainable Development, IRRC Institute and consulting firm Irbaris. The organizations unveiled a new tool called the Aqua Gauge to help investors weigh the water-related vulnerabilities of companies in their portfolios.

"Investors need and want this tool as a way to benchmark which companies are and which companies are not taking water risk seriously and managing that risk holistically," Ceres President Mindy Lubber said during a conference call with reporters today. 

Lubber noted that water risks can have big business impacts; in addition to the Texas drought example, she also pointed out how Toreador, a natural gas company, saw its stock price drop by 20 percent after the French government outlawed shale-gas fracking because of water quality concerns.

"The centrality of fresh water to our needs for food, for fuel, and for fiber is taking center stage in what has become a crowded, environmentally-stressed world," she said.

Using the Aqua Gauge, investors can score companies in four key areas: measurement, governance and management, stakeholder engagement, and transparency and disclosure. The Excel-based tool can deliver a quick glimpse or more comprehensive dive into a company's water management practices, and also allows users to track progress and identify companies for engagement. It isn't a survey and typically relies on information in the public domain.

Originally designed for institutional investors, companies would also find the tool useful, Lubber said.

The Aqua Gauge "allows them to analyze their risk, disclose that risk to the public, to their investors, colleagues and the community," Lubber said. "[They can] start defining measurement and reduction goals, look at their own governance systems for managing these types of risks, and engage with their stakeholders."

Construction pool image via Shutterstock.