The risks of increased water efficiency requirements: The carbon disclosure project global water report 2012

Cover of the CDP water disclosure reportBackground:
Industries are dependent on water for their functioning to varying extents. At the same time, mismanagement of water and the impacts of climate change have increased the insecurity of access to water. Despite this, there are a negligible set of mechanisms that police water use and management. The experiences of the industrial sector in monitoring greenhouse gas emissions suggests that transparency can be a motivational tool.

The CDP water disclosure project aims to inject some transparency into water-intensive industries with a view to encouraging strategic management of risk. This industry report examines the risk that companies face due to water uncertainty. The project took the form of a request signed by 470 financial institutions and sent to 318 companies listed on the FTSE Global Equity Index Series (Global 500) . It is a sign of the interest (or lack of  interest) that 185 responses were received.

In this report, we learn of the importance of management of water risk through the viewpoints of the project team, investors and strategists. Since many industries depend on water at some point in the production chain, they are vulnerable to water risk. This vulnerability extends to the companies that have invested in them. In order to protect their  investments, financial institutions need to ensure that the companies they invest in have strategies to manage this risk. This includes influencing water policies to minimise risk to corporate institutions. Sharing water related information, through platforms like this report, have the potential to encourage collective action among companies.

The survey brought out the following trends:

  • The response rate has not changed from the last year.
  • There is a nearly 40% increase in the number of respondents that are facing water-related costs problems.
  • On the other hand water issues, offer business opportunities; an increasing number of companies are aware of these. These include sales of water-related products and services.
  • Companies require their suppliers to report on water risk, use and management; but are not as forthcoming in their own boardrooms.

Statistical information presented:
The report also has statistical information on the responses, reported exposure to water related risks, types of water-related risks, time frame of exposure, arranged by industry category. A map showing geographical variation in responses illustrates that European countries do significantly better in terms of reporting and management. Statistics on water management, water risks in both direct operations and in the supply chain, identified opportunities, and action taken are presented for the following sectors:

  • Consumer discretionary
  • Consumer staples
  • Energy
  • Health care
  • Industrials
  • Information technology
  • Materials
  • Utilities

Collaborative action:
With water risk affecting companies within a sector almost equally, there is an increasing trend to work together to achieve business goals such as improving water access and securing operating licenses, with 74% of the respondents reporting at least one such action.

Given its importance, this report aims to provide guidelines to companies to work collectively between companies as well as with other partners such as local suppliers, NGOs and governments. It also reports on collaborative actions taken by companies to minimize their water risk and understand future problems.

Working with universities to develop water risk assessment tools, working with communities to secure an uninterrupted water supply, and engaging in water quality research with pharmaceuticals all ultimately help companies retain profits. Working with competitors helps the creation of solutions to water risk, as is  proven by alliances such as the Sustainable Apparel Coalition and 'Field to Market', International Petroleum Industry Environmental Conservation Association (IPIECA)and the International Council on Mining & Metals.

Unanswered questions:

This report raises and leaves unanswered several questions. If pressure is brought to align water policies to corporate interests, what will become of environmental concerns? Will ensuring that mining companies have adequate water prove detrimental to the concerns of subsistence economies? Will safeguarding investments ultimately prove costly to the earth?

The answers to these questions are not within the scope of this report, or even within its world-view.The fact that increased water efficiency requirements are perceived as a risk indicates the focus on the bottom line.

While the report is an effective analysis of water risks that may threaten investments, water policies ideally need to keep in mind a world beyond stock markets.

Download the entire report here.

Post By: chicu