‘Misguided’ Water-Risk Management at Largest Firms, CDP Says
A misguided approach to water-related risk management is business as usual at the world’s largest global companies such as BP, Bayer, Lockheed Martin, General Motors, Nestle, Walmart and Unilever, according to a CDP report released today.
Instead of focusing on reducing water use, which CDP says threatens shareholder value and is an inadequate response to increasingly immediate water risks, firms should look to water stewardship.
The CDP Global Water Report 2013 says water stewardship is the key to achieving water security. But it requires a significant step change. CDP, formerly known as the Carbon Disclosure Project, is calling on investors to take a leading role in guiding companies on this issue.
This report, written by Deloitte, is based on data provided to CDP by 180 companies listed on the FTSE Global 500 Equity Index at the request of 530 investors representing $57 trillion. Companies that use CDP’s water program for reducing risks and are analyzed as part of the report include those listed above.
Water presents substantial risk threatening profitability and shareholder security, primarily in the energy, materials and consumer staples sectors, according to the report. Each company in the sample faces an average of seven water-related risks, with about three quarters (70 percent) stating that water presents substantive risk to their business. Half have already experienced detrimental business impacts in the past five years.
The report also finds the percentage of risks that companies expect to impact their business within five years (64 percent) has increased by 16 percent in the space of one year and the majority of risks identified in direct operations (65 percent) and supply chains (62 percent) are near-term. The most widely identified near-term water risk is water stress or scarcity, followed by flooding and rising compliance costs. Declining water quality, higher water prices and reputational damage are among the other reported risks expected to impact within five years.
Corporates wrongly believe that water usage is the primary risk driver, CDP says. About two-thirds of companies (63 percent) report targets for their direct operations that largely relate to reducing water use or increasing re-use. Although more than half (52 percent) source materials or business inputs from regions of water risk, less than two-fifths (37 percent) require key suppliers to measure and manage water risks. Almost a quarter (23 percent) of companies do not know if water presents risk to their supply chains.
Low level of strategic planning or corporate ambition on key water stewardship metrics raises risk level, the report says. Despite increasing recognition that water risks cannot be tackled in isolation, just 6 percent of companies have targets or goals for community engagement, 4 percent for their supply chains, 3 percent for water management and 1 percent for transparency. Not a single company reports a public policy target and 15 percent of companies fail to meet water discharge regulations.
Water risks threaten metals and mining companies’ growth prospects — but companies that are taking action now to manage water are better financial performers, according to analysis published in July from CDP and Eurizon Capital.
Correction: Due to a CDP error, an earlier version of this article incorrectly said the report is based on data provided to CDP at the request of investors representing $87 trillion.
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