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 from Carbon Disclosure Project and Eurizon Capital.
Metals & Mining: a sector under water pressure, analysis for institutional investors of critical issues facing the industry calls for a reassessment of current valuation models for the companies in the industry.
Key findings include:
- The 36 metals and mining companies that disclosed water data represent $773 billion in market capitalization; all but one (92 percent) identify substantive water-related risks that could reduce profits.
- Water stress is identified as a possible risk to operations by more than two-thirds (67 percent) of the sample, making it the most reported risk. It is also the most imminent risk, with nearly half (47 percent) of companies expecting water stress to hit their business within five years.
- The majority (64 percent) of businesses have already been badly hit by water-related issues in the past five years, with flooding the most commonly cited occurrence.
- More than one third (39 percent) are now experiencing increased costs as a result of negative water impacts.
Some 530 investors representing $57 trillion requested 57 of the largest metals and mining companies in the Global 500 and other water-stressed markets disclose their water data through CDP. The report is based on information provided by 36 businesses. It finds that companies that report on and manage this issue generate superior financial returns (see graph).
The companies that failed to meet this investor demand for water data account for $160 billion of market capitalization and are listed in the back of the publication.
The report details the material risks posed to this sector by water and shows how poor water stewardship can lead to increased capital expenditure and operating costs, lower revenues, decreased shareholder value and disruption or ultimately an end to business operations.
Up to 40 percent of a metals and mining company’s value is based on its ability to exploit commodity reserves. However, insufficient volume or quality of water will hinder access to those reserves, significantly threatening business operations. US company Newmont Mining, for example, had to spend $200 million on larger water reservoirs to re-secure its license to do business in Peru.
The analysis suggests that metals and mining companies revisit traditional approaches to valuing to take account of the uncertainty surrounding a company’s ability to access adequate water.
Thirty-nine percent of water executives say demand is “highly likely” to outstrip water supply by 2030, while 54 percent say such a risk is moderately likely, according to research published last October by Oracle Utilities.