Risk and Investment Analyzers Applaud Attention to Water Management

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In 2011, some of the worst droughts in decades have hit regions in China, East Africa, the Middle East and the United States. Destructive flooding currently inundates Thailand and earlier this year the prolonged drought in Queensland, Australia was alleviated by 1-in-100-year floods. In this changing global environment, it is essential for global businesses
to address the importance of water as a critical resource if the global economy is to become resilient to the water-related impacts from which it is already suffering.

So concludes the Carbon Disclosure Project (CDP) Water Disclosure global report released November 16. The report finds that 57% of the 190 publicly listed organizations that participated in the survey report board-level oversight of water policies, strategies or plans. By comparison, a report released by CDP in September 2011 showed that 94% of Global 500 companies report board-level oversight of climate change, suggesting that corporate understanding of water as a business concern trails that of climate change. This is surprising, given that the majority of reported water-related risks and opportunities are recognized as near term.

Further CDP Water Disclosure global report findings include:

* Companies are demonstrating that the relationship between water and energy use is widely understood, with 72% of companies reporting linkages or trade-offs between water and carbon emissions.

* More than one-third of companies (38%) are unaware of whether they are exposed to water risk in their supply chains. In the Consumer Discretionary sector, which is dominated by industries that are particularly exposed to supply chain risk (e.g., retailers, hotels, resorts and automobile manufacturers) this figure rises to 41%.

* Energy companies report a high level of risk (72%), yet report the lowest levels of board oversight of water policies, strategies or plans (36%).

* The biggest water risk facing businesses in their direct operations is water stress or scarcity (41%), followed by flooding (24%), reputational damage (23%), and higher compliance costs (21%). One company reported that it had already experienced a water-related impact at a cost of $200 million.

“Some of the largest multinational companies have experienced the detrimental effects that water can have on their bottom line,” said Paul Simpson, chief executive officer at CDP. “We need to see more companies understand that water is a critical issue, requiring greater board-level attention than it currently receives. Those corporations that navigate the challenges effectively will be able to profit from the significant opportunities that result from a robust water strategy.”

The second annual CDP Water Disclosure Global Report is based on a questionnaire sent to 315 companies on the Global 500 index that are identified as operating in the most water-stressed locations or industry sectors. This year, 190 (60%) of these companies responded – a 10% increase from the previous year – showing improved transparency on water management. CDP Water Disclosure collects data annually on water use, strategies, risks and opportunities from companies on behalf of 354 investors representing $43 trillion in assets.

More than half (59%) of companies surveyed report exposure to water-related risks such as flooding, scarcity, and reputational damage. The majority of these risks are near term: 64% of risks in direct operations and 66% of risks in the supply chain are identified as occurring between now and 2016. Illustrating the urgency of water risk, more than one-third of responding companies (38%) have already experienced water-related business impacts, such as disruption to operations from severe weather events (e.g., flooding) and water shortages.

Underscoring the opportunities associated with effective water management, 63% of respondents say that water presents commercial opportunities, most of which (79%) are near-term. The most commonly identified opportunities are associated with cost reductions from increased water efficiency, revenue from new water-related products or services, and improved brand value.

Deloitte Touche Tohmatsu Limited (DTTL), one of the principal sponsors of this project, and consultants from the Deloitte member firm network supported CDP on analyzing the data and developing the contents of the report.

“It is promising to see that a growing number of companies are recognizing the importance of having strategies that respond to the increasing risks and opportunities arising from dependencies on this increasingly vulnerable resource,” says Nick Main, leader global sustainability, DTTL. “There is a need for broader action by companies to address water stewardship both at the enterprise and product levels. DTTL believes that development of standard measures and performance benchmarks around water use are critical steps toward achieving that broader action.”

Will Sarni, director and practice leader, enterprise water strategy at Deloitte Consulting LLP in the United States, and author of the recently published Corporate water strategies, adds, “We are witnessing the creation of a new paradigm for water management. This includes initiatives such as improved water data acquisition and analytics, improved water efficiency, energy efficient water treatment technologies, and a move to extract energy and nutrients from wastewater. The CDP Water Disclosure report is an important effort, along with other global initiatives, in transforming how we manage one of our most essential natural resources.”

The launch of CDP Water Disclosure’s second report at Bloomberg’s central London offices today, along with the availability of individual company responses at www.cdproject.net, provides investors, companies, governments and other stakeholders with a range of information on companies’ water usage, and related issues.

“Water is a precious resource and the importance of protecting local supplies should not be underestimated at a management or board level,” said Michael Glade, director, water resources & real estate of Molson Coors, a large global brewer that has responded to CDP voluntarily this year and is a lead sponsor of CDP Water Disclosure. “With a global network of local breweries, we have always believed that companies play a critical role in working with local water interests to ensure a sustainable watershed. It is only through transparent disclosure by all water users and knowledge-sharing that companies can move towards a more secure water future.”

Anne Kvam, global head of ownership strategies, Norges Bank Investment Management (NBIM), also a lead sponsor of CDP Water Disclosure says, “As a long-term investor in about 8,000 companies worldwide, NBIM takes water management seriously. We welcome CDP Water Disclosure's second report which provides critical information for managing water-related risk in our portfolio. We are pleased with the increase in companies that responded to this year’s questionnaire. Companies are placing more weight on water issues, which are both a risk and an opportunity. Companies need to strengthen oversight of water issues and get a better understanding of water-related risks in their supply chains.”