CDP report: Global companies taking 'outdated approach' to water issues
A misguided approach to water-related risk management has become "business as usual" at the world's largest global companies, according to the latest CDP Global Water Report.
Released today, the report finds that corporate focus is too often directed at reducing water use, which is an inadequate response to increasingly immediate substantive water risks, threatening shareholder value.
Alternatively, the report hails water stewardship as the solution to achieving water security but a significant step change is required if stewardship is to be achieved.
Head of CDP's water program, Cate Lamb says: "Although we are seeing great strides in corporate ability to identify water-related risks, the approach to managing those risks is misguided. If businesses are to become truly resilient to the growing threats that water poses, they must strive for stewardship".
Results of the report were based on the water disclosures of 184 Global 500 corporations accounting for approximately 11 billion megalitres of water withdrawals per year, which is enough to provide 50 litres of water per day to the approximately seven billion people on the planet for nearly 82 years.
The report found that each company analysed faces an average of seven water-related risks, with three quarters (70%) stating that water presents substantive risk to their business. Half have already experienced detrimental business impacts in the past five years.
Proving that water issues are rising up the corporate agenda, the percentage of risks that companies expect to impact their business within five years (64%) has increased by 16% in one year.
The majority of these risks identified in direct operations (65%) and supply chains (62%) are near-term, while the most widely identified near-term water risk is water stress or scarcity, followed by flooding and rising compliance costs.
It found that declining water quality, higher water prices and reputational damage are among the other reported risks expected to impact within five years.
The CDP says that corporates wrongly believe that water usage is the primary risk driver with two thirds of companies (63%) reporting targets for their direct operations that largely relate to reducing water use or increasing re-use.
"This outdated narrow focus falls short of the required response to the wide range of risks they face," it adds.
Also concerning investors is the low level of strategic planning or corporate ambition on key water stewardship metrics amongst these companies.
Despite increasing recognition that water risks cannot be tackled in isolation, just 6% of companies have targets or goals for community engagement, 4% for their supply chains, 3% for water management and 1% for transparency.
"Not a single company reports a public policy target and 15% of companies fail to meet water discharge regulations," the report states.
Commenting on the results, global asset management firm, Eurizon Capital, said: "Investors know how damaging inaction, inappropriate action or delaying interventions on water-related issues can be... The global economy will favour businesses that take a pro-active approach to water stewardship".
Global company Nestle stated that effective water stewardship will require that "provisions are made firstly for water to meet the human right to water, then to ensure that ecosystems are able to function, and finally to ensure that water is used efficiently for agricultural and industrial use".
Discussing these issues further, CDP’s head of water, Cate Lamb, will be speaking alongside Nestle’s technical and strategy Advisor on water resources Carlo Galli, Unilever’s research and development director Dr. Richard Wright and Diageo’s global head of environment Michael Alexander, amongst others, at next year’s Corporate Water Risk Conference. For more information see the Corporate Water Risk Conference website.