CDP: 68% of Businesses Report Water Risk Exposure
Two thirds of the world’s largest companies — including Merck, Unilever and H&M — are reporting exposure to water risks, some of which have potential to limit growth, according to CDP’s latest annual global water report.
The report finds that 68 percent of businesses report exposure to water risk, which could generate a substantive change in their business, operations or revenue.
Twenty-two percent of companies anticipate that issues around water could limit the growth of their business.
The analysis is based on the water management data of 174 companies listed on the FTSE Global 500 Equity Index provided to CDP at the request of 573 institutional investors with $60 trillion in assets. The number of investors pressing for corporate accountability on water and related information through CDP has increased by more than 300 percent since 2010, reflecting growing shareholder attention to water challenges.
Given almost half of the 853 reported risks — such as closure of operations and decrease in shareholder value — are expected to impact now or in the next three years, companies could quickly find themselves at a competitive disadvantage. In addition, the report highlights that water pressures will be most keenly felt in emerging markets where companies see new opportunities for growth, such as Brazil, China, India and Mexico.
Companies such as Diageo, H&M, Merck and Unilever are, however, beginning to respond to this risk, with three quarters of companies evaluating how water quality and quantity affects their growth strategy. This change comes as water increasingly moves from an operational issue into the boardroom: ultimate responsibility for water issues lies at board level in 62 percent of respondents, up from 58 percent in 2013, with the vast majority of companies (90 percent) integrating water into their group-wide business strategies and 82 percent setting goals and targets to reduce water use.
Leading companies are investing in order to reduce the value at risk from water stress and capitalize on opportunities such as cost savings or increased revenues. In fact, three quarters report that water offers operational, strategic or market opportunities. Chemicals giant BASF estimates that water saving, recycling, reuse and drinking water treatment products offer the company potential sales of $1 billion up to 2020. Electronics manufacturer Cisco is already saving $1 million a year while using less water as a result of a change to a soldering practice.
However, despite these positive actions, disclosure levels of the Global 500 have not kept up with investor demand for information, stagnating over the past year. Forty-two percent of the companies requested by investors to divulge information related to their water risks failed to do so. The energy sector has the lowest level of disclosure, despite companies in this sector reporting high levels of exposure to risk. The largest persistent non-disclosing companies by market capitalization and identified as having potentially the greatest impact on water resources include Nike and ExxonMobil.
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