A misguided approach to water-related risk management has become ‘business as usual’ at the world’s largest global companies, claims a report. Corporate focus is too often directed at reducing water use, which is an inadequate response to increasingly immediate substantive water risks, threatening shareholder value.
The international non-profit organisation CDP, formerly the Carbon Disclosure Project, says that water stewardship is the solution to achieving water security, one of the most pressing issues facing the world today. A significant step change, however, is required if stewardship is to be achieved. CDP calls on investors to take a leading role in guiding companies on this issue.
The report, entitled ‘A need for a step change in water risk management’, is written by Deloitte and based on data provided to CDP by 180 companies listed on the FTSE Global 500 Equity Index at the request of 530 investors representing US$57 trillion. Companies that use CDP’s water programme for reducing risks and capitalizing on opportunities relating to water and are analyzed as part of the report include BP, Bayer, Lockheed Martin, General Motors, Nestle, Wal-Mart and Unilever.
Among the report’s key findings:
- Water presents substantial risk threatening profitability and shareholder security, primarily in the energy, materials and consumer staples sectors. Each company in the sample faces an average of seven water-related risks, with three quarters (70%) stating that water presents substantive risk to their business. Half have already experienced detrimental business impacts in the past five years.
- Water risks are increasingly immediate. The percentage of risks that companies expect to impact their business within five years (64%) has increased by 16% in the space of one year and the majority of risks identified in direct operations (65%) and supply chains (62%) 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. Nearly two in three companies report targets for their direct operations that largely relate to reducing water use or increasing re-use. Although more than half (52%) source materials or business inputs from regions of water risk, only 37% require key suppliers to measure and manage water risks. Of greater concern, 23% of companies do not know if water presents risk to their supply chains. This outdated narrow focus falls short of the required response to the wide range of risks they face.
- Low level of strategic planning or corporate ambition on key water stewardship metrics raises risk level. Despite increasing recognition that water risks cannot be tackled in isolation, just 6% of companies have targets or goals for community engagement, 4% for their supply chains, 3% for water management and 1% for transparency. Not a single company reports a public policy target and 15% of companies fail to meet water discharge regulations.
“Although we are seeing great strides in corporate ability to identify water-related risks, the approach to managing those risks is misguided, said Cate Lamb head of CDP’s water programme. “If businesses are to become truly resilient to the growing threats that water poses, they must strive for stewardship.”
Will Sarni, director and practice leader, enterprise water strategy, Deloitte Consulting added: “While the framework for water stewardship is being solidified and many companies remain at the beginning of the journey, some are moving from managing water risk within their direct operations to evaluating and, in some cases, mitigating water risk across their value chain.
“For those companies mitigating water risk across their value chain, engaging in collective action programmes and taking responsibility for externalities such as access to clean water, sanitation and hygiene, leadership is within reach, if not already achieved.”
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