London / New York – There is a sharp rise in company reports of detrimental impacts from drought and other water-related issues, yet little change in the number of companies with board-level oversight of water strategies and no increase in the number of corporations providing transparent water-related risk assessments to investors. These are some of the key findings from global analysis of the largest listed companies released on October 23 by the Carbon Disclosure Project (CDP).
The CDP Global Water Report 2012, prepared by Deloitte, is produced for 470 investors representing $50 trillion in assets and is based on information submitted to CDP by 185 Global 500 companies [1]. The 2012 report reveals that over half of companies (53% up from 38% in 2011) have experienced negative impacts from water-related challenges including water scarcity, flooding, rising compliance costs, regulatory uncertainty and poor water quality in the past five years.
This has likely helped catalyze the growing awareness of water risk, with a jump from 59% to over two thirds (68%) of companies viewing water as a substantial risk to their business. Corporations perceive these risks as real and current, stating that the majority (62%) have the potential to impact their businesses by 2017.
Similarly, more companies this year identify commercial opportunity arising from an effective water stewardship strategy (71% up from 63% in 2011), and 79% of the opportunities reported have the potential to generate a substantive change in business now or in the next five years, some with a sales potential of more than €800 million by 2020.
Despite these significant risks and an improvement in awareness of supply chain risk – 71% of respondents are able to state whether or not they are exposed to such risk, up from 62% in 2011 – a third (29%) of respondents remain unable to provide a complete picture of water risks by failing to establish if water threatens their supply chain. This could be linked to the limited number of companies recognizing water as a board-level issue. While reported risks and opportunities have risen notably in comparison to 2011 response rates, companies citing board-level oversight of their water-related policies, strategies or plans has increased by just 1% to 58%. Furthermore, the percentage of firms responding to the investor request for water information through CDP remains the same as last year at 60%, while the proportion with concrete targets or goals in areas such as water efficiency and quality improvements has decreased from 57% last year to 55%.
“We look to Global 500 companies for examples of leadership,” says CDP’s Chief Executive Officer Paul Simpson, “While it is encouraging that their awareness of the commercial risks and opportunities associated with water is improving, progress in responding to them is varied and, in many cases, insufficient. We need to see greater corporate accountability through more transparency, concrete targets and goals and board level oversight of water-related issues.”
An encouraging three quarters (74%) of respondents are taking some form of collective action to develop collaborative solutions to address water-related problems and enjoy shared benefits.
“Global business leaders, especially in Global 500 companies, must understand their business value at risk from water related issues and implement strategic plans to help mitigate these risks. Increased competition for water, a finite and irreplaceable resource, requires prompt action now,” says William Sarni, Director and Practice Leader of Enterprise Water Strategy at Deloitte Consulting LLP, “These companies can set the tone for how smaller business can contribute to making informed water decisions.”
Although more than 100 additional investors have this year asked companies to report their water strategies and use through CDP’s global system, there has been no change in the number of companies disclosing.
“A higher proportion of companies in 2012 identified water as a substantive risk or opportunity compared with the previous year. While we welcome this increased awareness, companies need to improve transparency on their water management strategies. Companies should disclose metrics that show their exposure to water-related risks and opportunities, and that measure the performance of their water management strategy. This will provide important information for investors seeking to manage water-related risks and opportunities in their portfolios,” says Jan Thomsen, Chief Risk Officer at Norges Bank Investment Management (NBIM), Manager of the Norwegian Government Pension Fund Global.
Paul Simpson added, “We know that it can take companies some time to catch up with measurement, strategy and action once they identify risk so we expect to see more companies developing water strategies and disclosing next year.”
Of the sectors responding, only 44% of the energy sector companies requested to provide water information responded, placing the sector as the least transparent for the second year running. Healthcare has retained its position as the most responsive in reporting with a 77% response rate.
Notes:
[1] The Global 500 are the largest companies by market capitalization included in the FTSE Global Equity Index Series. 318 Global 500 companies were invited to respond to the CDP Water Disclosure information request because they operate in sectors which are water-intensive or exposed to water-related risk. 191 of the 318 companies responded and the analysis in the report is based on the 185 responses submitted by August 6, 2012.
About CDP
The Carbon Disclosure Project (CDP) is an international, not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information. CDP harnesses the power of market forces, including 655 institutional investors with assets of US $ 78 trillion, to collect information from companies on their greenhouse gas emissions and assessment of climate change and water risk and opportunity. CDP now holds the largest collection globally of primary climate change and water data and puts these insights at the heart of strategic business, investment and policy decisions. For more information, visit www.cdproject.net.
Source: CDP.
