Water Poses Risks for Companies -- and Opportunities

Water Poses Risks for Companies -- and Opportunities

Image CC licensed by Flickr user R. Butler

From developing laundry detergents that use less water to driving down costs through more efficient use, companies are increasingly viewing water as more than a potential business risk.

Some of the world's largest and most water-intensive companies also see business opportunities in strengthening their water management practices and offering services to address water woes, according to the Carbon Disclosure Project's inaugural Water Disclosure Report released today.

The nonprofit that has for years prodded large companies to disclose their carbon footprints has turned its attention to water, surveying 302 companies in the FTSE Global Equity Index Series on behalf of 137 institutional investors. About half responded, revealing the vast majority have water policies, strategies, and performance targets in place. Sixty-two percent view water as a business opportunity, and an even greater number recognize its inherent linkage to energy.

"We see corporations using their imagination and looking at these challenges as opportunities for growth," said Marcus Norton, head of CDP Water Disclosure. "From some of the feedback from companies, I think it's really a reflection that companies have been through this with carbon."

While encouraging, the findings aren't all rosy: Thirty-nine percent of companies have experienced detrimental impacts from water over the past five years, such as business disruptions or increased water costs. What's worse is the risks cited by businesses in the report are current to near-term, making it essential that companies immediately and proactively address potential problems, Norton said Thursday in a phone interview. 

"This is a strategic issue," he said. "Water is fairly cheap, often undervalued and underappreciated. Companies I'm sure will save some costs by measuring and managing their water use, but by properly understanding the watershed they operate in, and their suppliers operate in, they will put themselves in a position to understand and mitigate risk, and to understand and seize opportunities. How I think water will really hurt companies is not that it becomes more expensive, but that it runs out or they don't have access to it."

A facility in which a company invested millions of dollars could become worthless if it can't overcome adverse water conditions. Or a pollution incident could devastate an unprepared company, Norton said, citing the Zijin Mining Group, whose 2.4 million gallon acid spill into the Ting river led to the company's shares being suspended from trading on the Hong Kong stock exchange last month.

"The consequences of getting it wrong can be very serious," Norton said. "And by the time it goes wrong, it's usually too late to act."

Similar to carbon, visibility into supply chains is murky. Forty-seven percent of companies in the report couldn't say whether their supply chains are exposed to water risks, although 96 percent were aware of water risks in their own operations.

"I think it's not really surprising that the number is low," Norton said. "We had feedback when we were devising the questionnaire a little over a year ago that the supply chain was going to be difficult for companies. The feedback we had from investors was that's fine, but this is an important issue. It's where in some industries a lot of the risks will lie. We wanted to include it in the beginning to signal the direction of travel. It's something investors have increasing expectation on, and companies recognize that."

By sector, companies in the chemical and pharmaceuticals & biotech sectors had high response rates, at 100 percent and 81 percent, respectively. In comparison, those in the oil & gas and construction, infrastructure & real estate industries lagged. Overall, about 80 percent of companies opted to report their results publicly.

Norton said some companies keeping the results private are taking a wait-and-see approach.

"They want to see what their peers are doing before they take the step," he said. "Some companies I know have completed the questionnaire internally, but don't wish to share it at this stage, which is in some respects disappointing but I think the fact that they're engaged and thinking about this is a positive sign."

CDP declined to name individual companies as leaders, as is done with its greenhouse gas reporting program because of the lack of water measuring and reporting protocols. Companies are tracking water using a wide variety of metrics, making comparison difficult. The CDP's carbon reporting platform is based on the Greenhouse Gas Protocol, but there isn't the equivalent for water.

The World Resources Institute is working on the Water Risk Index, which Norton called "an important part of the equation" because it offers context for what is largely a localized resource.

"No company wants to report these numbers in numerous different ways, and investors are looking for comparability," Norton said. "So it's really in everybody's interest to develop such a standard. I'm hopeful that we will have something within the short term, within the next year or two. That will certainly enable everyone to take a leap forward."

Image CC licensed by Flickr user R. Butler.