Water shortage threatens growth for world’s biggest firms

That’s according the latest global water report from sustainability-minded non-profit CDP, which surveyed 174 companies listed on the FTSE Global 500 Equity Index.

The report reflects a growing awareness of the scarcity of water. The California droughts cost agricultural businesses about $2.2 billion this year, while the Chinese government boosted its water investment budget by 7% this year, and plans to start construction of 172 major water projects by 2020.

In total, businesses identified 853 water-related risks – such as closure of operations and decreases in shareholder value. Nearly half of these outcomes are expected to manifest themselves in the next three years, meaning companies could quickly find themselves at a competitive disadvantage.

Emerging markets are most at risk of water shortages, which could temper growth expectations in countries such as Brazil, China, India and Mexico. Brazil’s largest and wealthiest city Sao Paulo, for example, is reportedly dangerously close to running out of water.

Response

The burgeoning crisis has at least prompted a response from many of the surveyed companies, with 82% of respondents setting goals and targets this year.

In fact, three quarters believed that water preservation strategies could offer operational, strategic and marketing opportunities. Chemicals giant BASF estimates that water saving, recycling, reuse and drinking water treatment products offer the company potential sales of US$1 billion by 2020.

Predictably, companies most exposed to water risk are also the most prepared to invest in technological improvements, monitoring, and staff training. Since 2001 the Coca-Cola Company has invested more than US$1 billion in wastewater treatment.

Water transparency

However, despite these positive actions, disclosure levels of the Global 500 have not kept up with investor demand for information. 42% of the companies requested by investors to divulge information related to their water risks failed to do so.

The largest persistent non-disclosing companies by market capitalization and identified as having potentially the greatest impact on water resources include NIKE Inc and Exxon Mobil.

CDP chief executive officer Paul Simpson said: “Water is an essential resource for any business. The potential for water-related problems to damage brand value or limit corporate growth is increasingly understood.

“We live in a time of unprecedented demand for water and have seen the number of investors seeking accountability from companies on this issue through CDP rise more than fourfold in just four years. It is of grave concern that such a significant group of companies is failing to communicate management of water risks to their shareholders through our global system.”

Brad Allen