Nestle, Coca-Cola, Smithfield Foods and Olam are among the major food companies that are doing the most to use water more efficiently (as ranked within the packaged food, beverage, meat and agriculture products industries), according to a new report. Chiquita Brands, Monster Beverage, Pilgrim’s Pride and the Kraft Heinz Company are at the bottom of the their respective categories.

The report shows that the meat and agriculture products industries continue to lag far behind the packaged food and beverage industries.

Water Risk Is a Biggie

Water is currently one of the biggest risks to the $5 trillion food industry, according to the sustainability nonprofit organization, Ceres. The global food sector, which uses 70% of the world’s freshwater, faces extraordinary risks from the twin challenges of water scarcity and water pollution. Rising competition, combined with aging water infrastructure, weak regulation and climate change are creating a water availability emergency that the World Economic Forum recently ranked as the world’s “top global risk.”

A new report from Ceres ranks the 42 largest global food and beverage companies – mostly US based – on how effectively they are responding to corporate water risks like water dependence, water security and operational water use efficiency. The report, Feeding Ourselves Thirsty, looks at companies as they compare to their performance in 2015, when the first edition of Feeding Ourselves Thirsty was released.

Water scarcity, pollution and climate change are accelerating, making it imperative for companies to do more to “waterproof their businesses to protect and sustain” water supplies, says Brooke Barton, senior director of water and food at Ceres, who co-authored the report.

Companies were divided into four industry categories: packaged food, beverage, agricultural products, and meat, and were analyzed against actions in four categories of water risk management. The top scoring companies, out of a possible score of 100, by industry were:

• Packaged food: Nestlé, with a score of 82, up from 64 in 2015
• Beverage: Coca-Cola, with a score of 72, up from 67 in 2015
• Agricultural products: Olam, with a score of 49 (Olam was not part of the 2015 analysis)
• Meat: Smithfield Foods, with a score of 33 (no change from 2015)

Looking at Overall Scores

Top scorers this year in Beverage and Meat were unchanged from 2015.

The top scorers in Packaged Foods and Agricultural Products changed this year compared to 2015. In 2015, top companies in those categories were (respectively) Unilever with a score of 70, and Bunge at 29.

The report found a 10% improvement in the average score of the food sector’s management of water risk since 2015. The packaged food and meat industries made the biggest gains in improvement at 16% and 20%, respectively. Despite the big gains, however, the meat and agricultural products industries continue to lag far behind the packaged food and beverage industries.

Areas for Improvement, Areas of Growth

The analysis found that, overall, companies need to improve most on governance and board oversight, wastewater management, integrating water risk into procurement processes and collaboration to protect watersheds.

In contrast, areas showing most improvement since 2015 include integration of water risks into business strategy, setting water targets, water accounting, risk assessment and sustainable sourcing programs. Companies making strongest progress in these areas include General Mills and Unilever (in terms of risk assessment) and Kellogg’s (in terms of sustainable sourcing).

“More than 85% of our water footprint is from growing and transporting crops, and turning those crops into food ingredients,” says Jerry Lynch, VP and chief sustainability officer at General Mills. He says the company continues to identify opportunities to increase efficiency and conservation upstream of its operations, which is where the company can have the most impact.

Investing Rises to the Fore (Again)

Once again, the topic of how ESG initiatives (and ESG reporting) are of interest to investors has surfaced. Companies that acknowledge the environmental risks they face, and that analyze how those risks might affect their value, may be more likely to catch the eye of investors. CalSTRS, for example, says that as a long-term investor, it “engages companies on ESG issues, including the need to analyze risks to their value from exposure to a depleting water supply and either a lack of or an ineffective water use management plan and policy.”

The study from Ceres can help institutional investors examine their environmental risk engagements, especially with the low-scoring companies held in their portfolios, says Anne Sheehan, director of corporate governance for CalSTRS. “It also provides investors a clearer perspective on how well – or not – food companies are responding to water risk in order to sustain a competitive advantage in their market sector,” she adds.

Reporting on Water Risk Highly Recommended

The analysis notes that the food sector is highly vulnerable to climate change impacts; yet, surprisingly, more than one-third of the publicly held companies analyzed made no mention of climate-related water risks in their most recent 10-K filings. This is despite the fact that increasing variability in precipitation patterns due to climbing temperatures pose enormous risks to the food sector, such as agricultural supply chain disruptions and lost growth opportunities in water-stressed markets, the report states.

Just this week, a report from Accenture, CDP and Hermes Investment Management suggested that, by not quantifying and reporting on the environmental risks they face and the potential value at stake from addressing those risks, organizations are missing a huge opportunity to build investor trust and ensure long-term profitability.

“Consumer goods businesses are heavily exposed to physical, climate and operational risks through reliance on agricultural and commodity inputs; they also face challenges to brand value if they remain inactive on environmental issues,” according to the report. Yet more than 40% of the top 100 telecom and consumer goods companies reporting to CDP have not quantified, or publicly reported, the potential value at stake from addressing these risks and overcoming them with strong environmental performance, according to the research.

About the Report

Using publicly available data from sources like 10-K filings, sustainability reports and the CDP Global Water Report, Feeding Ourselves Thirsty scored companies based how they manage water through governance and strategy and in their direct operations, manufacturing and agricultural supply chains.