Lack of Awareness About Water Risks Threatens to Sink Global Firms

Lack of Awareness About Water Risks Threatens to Sink Global Firms

Drought -- Image CC licensed by Flickr user suburbanbloke

Although many consider water to be "free," its growing scarcity promises to carry a hefty price tag for the world's businesses and for those who have invested in them.

Unfortunately, the vast majority of large publicly traded companies are failing to adequately manage and disclose the risks they face from water scarcity, an issue that will likely become more acute as the world's population increases and the future impacts of climate change come to pass, according to new Ceres research.  

The nonprofit investor advocacy group released a report today evaluating the corporate water disclosure practices of 100 large companies, while also offering a roadmap for reporting water data in a way that is useful for investors and stakeholders.

"This report makes clear that companies are not providing investors with the information we need to understand risk and opportunities from water scarcity," Jack Ehnes, CEO of the California State Teachers Retirement System (CalSTRS), the nation's second largest public pension fund, said Thursday during a press conference to launch the report.

Ceres published "Murky Waters? Corporate Reporting on Water Risk" on the heels of guidance released by the U.S. Securities and Exchange Commission on how public companies disclose climate change risks. The SEC specifically refers to water issues, saying, "Changes in the availability or quality of water … can have materials effects on companies."

Many have begun referring to water as the "new carbon" because of its anticipated prominence as an emerging business risk. In response to increasing investor concerns over water, the Carbon Disclosure Project, which solicits greenhouse gas emissions data from companies on behalf of institutional investors, recently launched CDP Water Disclosure, adding to the growing list of impacts companies are being asked to report on. Coincidentally, the first Forest Footprint Disclosure report was released this week, evaluating how global companies are managing their forest impacts.

The new Ceres report found that some of the sectors most vulnerable to water stress were also the most advanced reporters. For example, the mining and beverage industry's received the highest overall points. As a whole, the homebuilding sector lagged.

The highest sector performers were: Diageo (43/100 points, Beverage), Pinnacle West/Arizona Public Services (38/100 points, Electric Power), Unilever (34/100 points, Food), Xstrata (42/100 points, Mining), BP (35/100 points, Oil & Gas), Toshiba (35/100 points, Semiconductors), Mitsui (33/112 points, Chemicals) and KB Home (15/112 points, Homebuilding).

While most companies are reporting basic water information, such as for overall water use or water scarcity risks, the research showed they have a long way to go. The vast majority fails to disclose water risk or performance data in their financial reports, local-level water data -- especially important in the context of their operations in water-stressed regions, or suppliers' water performance, despite the fact that the majority of many corporate water footprints in found in supply chains.

It should be noted that a company's lack of disclosure may not be a sign of unpreparedness. "As we read the report, we were pleased we did well," said Ed Fox, vice president and chief sustainability officer at Pinnacle West, which owns Arizona Public Services, the top-scoring utility. "Most of the information being sought is information we already have but just haven’t reported." 

The risks posed by water scarcity are diverse. The physical risks, for instance, can disrupt business activity, evidenced by the multi-year drought in California, which led farmers to allow more than 100,000 acres of land to go unplanted or be simply abandoned. There are also threats to corporate reputations, where increased competition for water supplies can turn companies and communities against one another, especially in emerging markets where water scarcity issues are more acute.

The regulatory and legal fronts are not immune. As water scarcity becomes more of an issue, municipalities will increasingly move to institute more stringent policies, while companies may be forced to defend themselves in court over their impact on water supplies.

There are however, glimmers of hope. The U.S., for instance, is using less water than it did a generation ago. There are also opportunities that are being enjoyed by savvy companies, according to Brooke Barton, lead author of the report. "At the same time," she said, "companies like Dow and DuPont see competitive advantages to making their products more water efficient."

Image CC licensed by Flickr user suburbanbloke.