Companies Report Significant Near Term Water Risks

In the second annual Carbon Disclosure Project (CDP) Water Disclosure Global Report released last week, more than half (59 percent) of the companies surveyed said they are exposed to water-related risks such as flooding, scarcity and reputational damage.

What's more, almost four in 10 (38 percent) already have experienced water-related business impacts, including disruption to operations from severe weather events (e.g., flooding) and water shortages.

And companies described most of their water risks as near- term. Nearly two-thirds (66 percent) of risks in the supply chain and 64 percent of risks in direct operations were identified as occurring between now and 2016.

But even so, the report also found that only 57 percent of the 190 publicly listed organizations that participated in the survey implement board-level oversight of water policies, strategies or plans. By comparison, a report released by CDP in September 2011 showed that 94 percent of Global 500 companies report board-level oversight of climate change.

Why the gap? While it's encouraging to see that awareness about water risks is on the rise, it's also clear that companies need to strengthen their oversight of water-related issues particularly in the supply chain. The CDP report revealed that more than one-third of companies (38 percent) are unaware of whether they are exposed to water risk in their supply chains. In the Consumer Discretionary sector, which is dominated by industries that are particularly exposed to supply chain risk (e.g., retailers, hotels, resorts, and automobile manufacturers), that percentage rose to 41 percent.

The report also found that:

Companies are demonstrating that the relationship between water and energy use is widely understood, with 72 percent of companies reporting linkages or trade-offs between water and carbon emissions.

Energy companies report a high level of risk (72 percent), yet report the lowest levels of board oversight of water policies, strategies, or plans (36 percent).

The biggest water risk facing businesses in their direct operations is water stress or scarcity (41 percent), followed by flooding (24 percent), reputational damage (23 percent) and higher compliance costs (21 percent). One company reported that it had already experienced a water-related impact at a cost of $200 million.

"Some of the largest multinational companies have experienced the detrimental effects that water can have on their bottom line," Paul Simpson, chief executive officer at CDP, said. "The findings released today illustrate the very near-term nature of water-related impacts. We need to see more companies understand that water is a critical issue, requiring greater board-level attention than it currently receives. Those corporations that navigate the challenges effectively will be able to profit from the significant opportunities that result from a robust water strategy."

The second annual Carbon Disclosure Project (CDP) Water Disclosure Global Report is available here.

TAGS: Finance
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