Are businesses prepared for water-related climate risks?

Pictured: Llwyn-On Reservoir, South Wales, during a previous drought

The revelation from CDP was timed to coincide with World Water Day on 22 March, and was based on a survey of more than 3,100 large businesses.

One-fifth of these businesses said they are facing water-related supply chain risks which could have a “substantive” impact on their businesses in the near-term.

The challenge is global. It has reached regions in the Global North previously regarded as not particularly climate-vulnerable. Businesses in Europe are not immune.

The UK has seen record rainfall over the past 18 months (October 2022 to March 2024), for example. Flooding was widespread in the first quarter of the year with locations from Yorkshire, to the West Midlands, to the South East being impacted.

Scientists have warned time and again that the UK is likely to face milder, wetter winters and hotter, drier summers due to climate change. This will be the case, to some extent, regardless of efforts to cut emissions. This warning came yet again from the UK Government’s official advisory body, the Climate Change Committee (CCC), last month.

Yet the Government is struggling to take a joined-up approach. In regards to flooding, inflation has led to a reduction in the number of flood protection schemes the Environment Agency is set to finance through 2027, from 2,000 to around 1,500. And one in 15 of England’s existing flood defences are classed as being in either ‘poor’ or ‘very poor’ condition.

The UK Centre for Ecology and Hydrology stated that “all of nothing” rain patterns are being experienced more frequently due to climate change.

It has warned this week that high rainfall like that seen recently will not guarantee water security in warm, dry periods due to an historic lack of investment in major reservoirs, on-farm water storage systems and efforts to reduce waste from leaking pipes.

The CCC has called the UK Government’s existing national climate adaptation programme “inadequate”, lacking a top-line, strategic approach in line with science and also sparse with details on how to leverage private finance.

Previous CCC analysis concluded that up to £10bn each year will need to be allocated to climate adaptation efforts – far higher than the £500m-£1bn estimate given to the Committee by Ministers.

This analysis cast doubts on the leveraging of this level of finance without more of a long-term leadership stance from the Government, which has not been forthcoming ahead of the general election.

Corporate strategy

Around 40% of the eligible global population will vote in a national election this year, so this issue is not specific to the UK.  In this state of policy inertia, it will fall on businesses to lead.

S&P Global estimates that just one in five companies had a plan in place to adapt to physical climate-related risks this time last year. The trend towards such planning is most pronounced in the energy, utilities and real estate sectors.

Companies without such plans will need to produce them or face being blindsided both by physical and reputational risks. Uptake of this kind of planning will doubtless be spurred by the introduction of maturation of frameworks provided by bodies such as the Taskforce on Climate-Related Financia Disclosures (TCFD) and the International Sustainability Standards Board (ISSB). The TCFD notably recommends that firms measure likely risks to their whole value chains in a range of warming scenarios – a process many businesses find challenging yet enlightening.

There are also platforms such as CDP’s water platform, which remains far less popular than its climate disclosures tools.

Firms with plans will need to flesh them out over time. S&P Global found that many companies have generic adaptation plans with either no timeline for action or actions which begin at least a decade out.

This chimes with research conducted by the World Economic Forum ahead of this year’s Davos meeting. Its poll of 1,400+ risk experts found that those in the private sector saw less urgency in responding to extreme weather than their counterparts in policymaking and civil society.

But, as highlighted by Andy Griffiths, head of sustainable procurement at Diageo, in a recent edie podcast interview, the climate risks which business leaders were taught to see as issues for the distant future are coming sooner than expected.

Griffiths said: “There is a growing recognition of the need to lean into long-term risks… We’re starting to see more businesses recognising that when people talk about wanting to act for their children and grandchildren, in reality, we’re seeing a number of the impacts play through now.”

CDP has outlined several other steps which businesses can take beyond measuring water-related risks and impacts, then using this data to set targets. These include:

• Incentivising executives to act (only 14% of companies do this currently).
• Including water in future supplier requirements.
• Engage with existing suppliers.
• Incentivising and supporting suppliers to act.