Businesses urged to 'wake up' over £11bn water risks
Businesses have been issued a "wake-up call" by a new CDP report which revealed that water risks fuelled by climate change cost the private sector $14bn (£11.3bn) over the last year.
Launched in Marrakech during the COP22 climate conference, CDP’s annual request for investment-relevant information attracted responses from 607 listed companies in sectors exposed to water risk.
Year-on-year trends analysis shows that companies are not adequately preparing for a water-scarce world – with disclosing companies reporting a five-fold increase in water-related impacts from last year. The report suggests that water security will increasingly threaten business models, as companies expect half of the 4,416 water risks identified to materialise within the next six years.
CDP’s chief executive Paul Simpson says: “This year’s findings offer two clear lessons for the private sector. Firstly, that water risks can rip the rug from right under business, posing a serious threat to bottom lines.
“Secondly, and crucially, that water will be a fundamental global commodity in the transition to a low-carbon economy. Every drop of clean, sustainable water will be essential for the emissions reduction activities countries and companies have planned. This is a wake-up call to companies everywhere to take water more seriously.”
The UN estimates global demand for water will exceed available supply by 40% by 2030. The need for improved business water management will be critical. The CDP report found that 24% of carbon reduction activities planned by businesses are highly-water dependent.
Many businesses are already acutely aware of the risks that water security poses. In fact, CDP has already surveyed 174 companies listed on the FTSE Global 500 Equity Index, finding that more than two-thirds of those companies realise that water security could harm business growth.
However, the latest CDP report suggests that corporates are not moving fast enough. The energy sector in particular is cited as a “major laggard” and the least transparent about water risks. In total, 77 of 109 energy companies – including Exxon, Chevron and Shell - asked to provide information to investors about their water risk management efforts failed to do so.
CDP are calling on non-disclosing companies to take “immediate steps” towards reporting to CDP’s water programme. Investors are urged to join peers that already collectively manage more than £53trn in assets to support the programme.
To mobilise action, CDP is planning to introduce a stronger disclosure framework in 2018, tailored to industry sectors, and a new reporting platform. The firm states that reporting companies should engage with the development of the framework to ensure they can provide investors with the information they need.
“For a long time companies have taken water for granted as a free and plentiful resource. But these assumptions are unraveling as the impacts of climate change gather pace,” CDP’s head of water and report lead author Morgan Gillespy said:
“From the $100bn worth of energy infrastructure at risk from rising sea levels in Louisiana to Chinese industry facing tightening restrictions on water use, investors are right to worry about the impacts of water risks on their assets.”
Transitional efforts to a low-carbon economy hinge on a global ability to tackle the water scarcity climate crisis. A World Resources Institute (WRI) report from 2015 suggested that, by 2040, 33 countries would be at risk from water-stress.
Fortunately, a number of external business drivers have emerged that place water stress and security at the heart of forward-thinking companies. The largest of these drivers is the UN's Sustainable Development Goals (SDGs). Goal Six calls on businesses to “ensure availability and sustainable management of water and sanitation for all” and efforts are being made to achieve this.
Earlier this month, edie heard from some of the private sector's leading lights on tackling water scarcity to uncover the business case that lies beneath the surface.