A Wave of Change: Companies’ role in building a water-secure world

By Laureen Missaire 26 May, 2021

Despite the pandemic, disclosing companies are up 20%. CDP's Missaire shares the latest trends from their 2020 global water report

When it comes to water security, businesses cannot afford to wait. The current drought in Taiwan is proof that water availability presents financial risks for businesses operations and across supply chains. CDP’s 2020 Global Water Report shows the cost of inaction on water risks is up to five times the cost of action, and that there are huge business opportunities to be seized in the transformation to a water secure world.

2,934 co’s responded of which 1,018 have HQ in Asia

CDP’s water security program, initiated in 2010, aims to achieve a water-secure world by focusing investors, companies, and cities on measuring, understanding, and reducing their environmental impact.

In 2020, 5,537 high impact companies (both in terms of water consumption and pollution potential) were asked to provide data about their efforts to manage and govern freshwater resources through CDP. In total 2,934 companies responded, from which 1,018 are headquartered in Asia.

CDP’s latest Global Water Report – “A Wave of Change – The role of companies in building a water-secure world” – presents the analysis of these 2,934 responding companies of which 931 are of the world’s largest publicly listed companies.

The findings of the report show that in 2020 – despite the pandemic – there was a 20% increase in companies disclosing through CDP’s water security questionnaire compared to 2019. The uptick in responses has been particularly strong in the materials, retail, and transportation sectors.​ This increase in disclosure is testament to the fact that companies are recognizing what is at stake with rapidly depleting water resources and realizing the importance of transparency in turning this crisis around.

The cost of action is less than the cost of inaction

Analysis of companies providing information about water risks in 2020 indicates that the potential financial impact of water risks is over five times higher than the cost of addressing them.

Financial impact of reported risks up to US$301bn; while mitigating risks costs only US$55bn

The total financial impact of reported risks is up to US$301 billion; while mitigating those risks costs only US$55 billion. As well as making sense from an environmental perspective, it is financially wise to act on those risks; mitigating them makes business sense.

The report investigates financial data on water risks at a company, regional, river basin and sector levels and the finding above remains true: the potential financial impact of water risks outweighs the cost of addressing them. There are exceptions for the power generation and infrastructure sectors where large energy companies are reporting global investments to diversify and decarbonise their energy portfolios. These costs reflect the response to a broader set of risks, beyond water risks in specific locations.

Focusing on Asia, our global analysis suggests that 6 out of the 10 riskiest river basins [river basins where most risks have been reported by companies in 2020] are in Asia: the Chao Phraya in Thailand, the Ganges-Brahmaputra system draining the Himalayas, the Indus in Pakistan, the Yangtze in China and the Tone and Yodo in Japan.

6/10 riskiest river basins are in Asia

(click on images to enlarge)

The potential financial impact of risk in Asia is valued at US$132.1 billion, with the cost of response estimated at just US$5.06 billion – again, this highlights a clear business case for action.

Is corporate action to date enough?

Our data indicates that corporates are investing in mitigation measures – particularly increasing capital expenditure (US$19.7 billion), improving pollution abatement measures (US$13.2 billion) and increasing or reviewing infrastructure investments (US$11.6 billion). But are these investments sufficient to reduce water risks and improve water security for businesses and wider society?

“…turned a corner on water use, with 64% of consistently reporting companies…”

but a long way to go on water quality disclosure, only 4.4% setting targets

CDP’s analysis suggests that we have reason to be optimistic. We have turned a corner on water use, with 64% of consistently reporting companies [analysis from a cohort reporting consistently between 2015 and 2020] now reducing or maintaining their withdrawals from water sources. However, disclosures on water quality indicate that we have a long way to go before the elimination of corporate water pollution becomes mainstreamed. Just 4.4% of companies are setting and reporting progress against pollution reduction targets.

What is being invested in is also important. Companies that invest in approaches that address fundamental issues – like improving supplier performance and designing out pollution from products – will ultimately make leaps rather than small steps towards reducing water risks.​ Decisively, the report highlights that companies should prioritize investments that bring long-term and fundamental progress on water security.

From transparency to transformation

The report paints a vision for a water secure world where citizens, industry and nature all have the water they need for a thriving economy. The private sector is vital to achieving this vision and to get there, companies need to go beyond business as usual, rethink their strategies and transform their business models. Action must go beyond just mitigating water risks. The report also highlights that doing things differently can bring significant financial rewards as the total value of water related opportunities reported through CDP was up to $711 billion.

Water related opportunities up to $711bn

The report presents several business “stories of transformation”. One is Nissan Motor Co., Ltd, a Japanese multinational automobile manufacturer who has been disclosing to CDP since 2016 and achieved an A for water security in 2020. To increase resilience to extreme weather events, Nissan is aiming to reduce water withdrawals for manufacturing by 21% globally. They are doing so by harvesting rainwater and recycling much of their wastewater. This approach is already enabling its Indian facility to be independent of external water sources for up to 130 days.

Nissan’s Indian facility can operate independently of external water sources for up to 130 days

Now, what are the enablers of such transformations that other companies can employ? Throughout our analysis, it is clear that companies demonstrating transformative action have certain things in common. They all have water issues integrated into their long-term business objectives, strategy, and financial planning; they also have C-suite incentives tied to water use reduction, pollution reduction or engaged with their supply chains. In addition, they all use climate-related scenario analysis to inform their strategy.

In conclusion, companies that transform their business and work to protect water resources have the potential to achieve both short and long-term cost savings, generate revenues and contribute to a resilient future for all. Delivering an inclusive, sustainable, and responsible economy is one of the defining challenges of the 21^st century and the corporate water leadership showcased in our report, if adopted at scale, will position us well to meet it.

To find out more about how companies are acting on water security, re-thinking their strategies and transforming their business models, look at CDP’s full report.

Further Reading

• Looking for water in China’s 14FYP – The new China is not the old China. CWR’s Xu & Tan went searching for water in the 14FYP and are left feeling optimistic, see why in our review
• Water caps & targets – how has China fared and where is it going? – China has set a 2025 water reduction per unit of GDP target. Is it aggressive enough? To answer this we take a close look on how China has fared on its past targets
• Getting Old & Feeling Unloved: Water Needs A Multi-Billion Dollar Makeover – Ageing water infrastructure presents a new set of problems that will eventually lead to a breakdown in our water systems. It’s time for a multi-billion dollar makeover says CWR’s Tan
• Wipeout – 8 Reasons Why Stress Testing For Chronic Risks Will Strand Assets – Systemic shocks from water risks are inevitable unless action is taken to reduce emissions. CWR’s Dharisha Mirando & Debra Tan share 8 things you need to know about stress testing your portfolio
• It Happened – Central Banks And Water Risks – Half a dozen new reports by the NGFS means that CWR has achieved a key milestone in embedding water risks in finance. Debra Tan and Dharisha Mirando expand on these game-changing moves by the central banks. The credit evolution has started

More on Latest

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• 3 Reasons Why APAC Banks Must De-risk Now – CWR’s Dharisha Mirando explains why APAC banks must lead & de-risk, plus she catches you up on the latest new stats from science and finance, so you won’t be blindsided
• How Water Risks Will Impact Credit Ratings – Water risks are relevant for a wide variety of sectors & asset classes yet, incorporating them in credit rating decisions is difficult. Fitch Ratings’ Justin Sloggett shares what to do
• TCFD Support: Identifying Cheap Talk & Cherry Picking – TCFD is championed by many as the gold standard of disclosure. But is it truly effective? Julia Anna Bingler, Mathias Kraus & Markus Leippold, together with the help from ClimateBert, say no
• Adapting To Climate Change – Like it or not, climate impacts are getting increasingly ‘up close & personal’ yet, adaptation finance is lagging. Banks & investors should get on top of it as it makes business sense, suggest BNP’s Chaoni Huang & Jonathan Ho