CDP: Water risk costs for corporates five times higher than cost of action
Some $301bn of business value is at risk because of water stewardship challenges, yet it would take corporates just $55bn to deliver appropriate mitigation and adaptation initiatives.
That is according to a major new report from CDP, based on data from the 2,934 companies that disclosed information through its water security questionnaire in 2020.
While there was a 20% year-on-year increase in the number of businesses taking the survey, CDP is warning that most companies are unable to prove they are doing enough to combat the most pressing water-related issues and minimise the related risks. More than one-third of the respondents increased water withdrawals, and more than 95% were not able to evidence progress against pollution targets.
CDP is warning that better measurement and disclosure of water-related risks, along with increased investment in mitigation and adaptation measures, will be needed to avoid major financial risk. It has calculated that the businesses disclosing collectively stand to lose $301bn of value by 2050 without greater ambition and action. Losses could result from physical damage or from transition risks, including a loss of investor interest. Investors managing $110trn of assets collectively support CDP’s water security questionnaire.
This is despite the fact that delivering an appropriate response to challenges like water stress, water scarcity and pollution could cost just $55bn – one-fifth of the amount associated with the risks.
“The water crisis must be approached with the same urgency and innovation as the COVID-19 crisis – and the business case for action is clearer than ever,” CDP’s global director of water security Cate Lamb said.
“We can turn this situation around, but we need much more transformative action. As investors pay closer attention to companies’ management of water risks, CDP is calling for all companies to develop ambitious targets to reduce water withdrawals and eliminate water pollution, including net-zero water targets. Companies must take bold action now to transform their business models.”
Learning from the leaders
While the overall trends for companies disclosing water information CDP were far from positive, the organisation’s analysis did highlight some cases of best practice.
Several firms were able to either decouple water withdrawals from growth, while others reached net-zero water withdrawals by replenishing as much water as they withdrew. Companies in this cohort include Nissan, Ford Motor, L’Oreal, AstraZeneca.
Others, like Mars, PVH, Kering and Samsung, have increased investment in innovations that minimise water use and assist with the transition to zero pollution. PepsiCo, for example, is investing in reverse osmosis systems that improve the quality of wastewater before it is discharged.
CDP also noted a trend towards businesses wanting to engage consumers with their water stewardship efforts through new product lines. Unilever has begun selling ‘dry’ versions of personal care products in water-stressed nations, while L’Oreal’s Garnier brand recently debuted shampoo bars that offer a 25% reduction in environmental impact over liquid products in plastic bottles.