Food Companies Aren’t Moving Quickly Enough to Fend Off Global Water Crisis
By Daniel Shepard 25 January, 2022
F&B co's still aren't doing nearly enough on water according to Ceres' latest benchmarking study. Their Shepard shares key findings & areas to improve asap
In November 2021, Ceres released the fourth iteration of its biannual report, “Feeding Ourselves Thirsty”, which ranks 38 of the largest food & beverage companies on how effectively they respond to water risks. The full report can be found here.
The $6 trillion global food and beverage sector operates at the center of the world’s worsening water crisis. Relying on vast and consistent amounts of cheap water, food sector companies are among the first to feel the impacts as the global water supply becomes increasingly scarce, polluted, and unpredictable.
Food industry consumes 70% of freshwater
The business imperative to effectively manage water supplies for the food sector is clear. Because the industry consumes 70% of the world’s freshwater to grow and manufacture its products, and contributes to impacts on freshwater, the physical, reputational, and regulatory risks these giants face are unquestionable. Clean and abundant freshwater is a critical asset to food companies and to the farmers who grow raw ingredients.
US$190bn = potential financial impact of water risks reported by food co’s in 2020…
…though likely much higher
This crucial resource is being depleted and polluted at an alarming rate and the physical effects of climate change only exacerbate this trend. In 2020, companies across the food sector voluntarily reported to CDP a potential financial impact of water risks totalling $196 billion. The actual financial impact is likely higher, as the full universe of food sector companies did not disclose their figures.
For example, only 25 of the 38 companies analyzed in Feeding Ourselves Thirsty specifically identified and comprehensively disclosed the water-related risks within their value chains that have the potential to have a substantial financial or strategic impact on the business.
Ceres benchmarks the food sector’s performance on water risk management
In order to provide investors with guidance and relevant data, Ceres looked at how food sector companies are responding to water risks and how their performance has changed in key areas since the first round of benchmarking in 2015.
Assessed 38 co’s water management across governance, risk assessment, targets & implementation
Ceres evaluated 38 food companies in four industries with some of the highest exposure to water risks: Agricultural Products, Beverages, Meat, and Packaged Foods.
Companies were assessed, based on public disclosures by the companies up to June 15, 2021, on a 0-100 points basis across four categories of water management: Governance (22 points), Risk Assessment (28 points), Targets (36 points), and Implementation (14 points).
Over the past few years, food companies have shown that they are taking global water risks more seriously. Since Ceres introduced Feeding Ourselves Thirsty in 2015, company performance in the benchmark has incrementally improved, signalling a deeper understanding and increased management of water risks.
The companies provided evidence of programs and goals to increase water quality and efficiency in their own operations and promote water quality and water-saving practices in their supply chains, including those in water-stressed regions.
Avg company score was only 45/100; meat sector the lowest at 18…
…highest scores were the Packaged Food & Beverage sectors
In spite of this progress, many companies simply aren’t moving quickly enough to ensure sustainable water supplies. The average company score is less than half of all available points, with an overall food sector average of 45 points. The meat sector still lags behind the pack, scoring an average of 18 points.
Consistent with our previous reports, the highest scores were in the Packaged Food and Beverage sectors, followed by the Agricultural Products and Meat sectors. But overall, companies do not have sufficient water risk management practices in place, exacerbating their exposure to threats across their supply chains.
Performance Improvements Made
- 79% of the companies’ boards have explicit oversight over sustainability-related issues, a 44% jump from 2017.
- 53% of the companies link executive compensation to water performance goals, a 60% jump from 2019.
- 42% of the companies have a watershed protection plan for their agricultural supply chain, a 50% increase from 2019.
- 55% of the companies provide financial incentives to farmers to encourage adoption of practices to reduce water use and impacts, a 60% increase from 2019.
Performance Improvements Needed
- Only a small number of companies – 17 – disclosed a supplier policy that includes specific expectations regarding water use and quality, while even fewer – eight – demonstrated policies that define protocols for non-compliance.
- Less than half of the companies – 18 – performed robust water risk assessments (inclusive of water quality) that focus on their agricultural supply chains.
- Only a handful of companies – nine – have implemented water use reduction targets for key growing regions in their supply chains.
- A mere 12 companies focused their direct or indirect financial support on farmers growing key ingredients in high-stress water basins.
Recommendations for investors
Investors can use the findings from this benchmark to understand the water management practices of their portfolio companies.
Water risks in the food sector are both material & systemic in nature
For institutional investors, and universal asset owners especially, water risks in the food sector are both material and systemic in nature. For investors who take an active ownership approach on ESG and water issues, these findings can support stewardship efforts to change corporate practices and policies, improve investment returns, and create long-term investment value.
Investors can join collaborative efforts on water risk to better understand and manage these risks. Ceres’ Valuing Water Finance Initiative is an effort to drive corporate action on water-related financial risks and raise awareness within the capital markets of the widespread negative impacts of corporate practices on water supplies.
Ceres’ Investor Network and its associated member working group, the Investor Water Hub, supports investors’ corporate engagement on water risk, providing resources to help investors evaluate and manage water risks in their practices and decision-making.
The Investor Water Hub forum offers peer-to-peer sharing of water risk integration and engagement practices, and develops methods to assess water risks and opportunities across asset classes.
“…water stewardship is not just an environmental concern, but also a financial imperative”
These efforts underscore how water stewardship is not just an environmental concern, but also a financial imperative. In order to maintain growth and profitability in this new, more challenging landscape, food companies must develop agricultural sourcing strategies that are climate and water resilient and fundamentally decoupled from environmental degradation and adverse human impacts.
To hear directly from corporate and investor experts on the implications of this analysis, watch our recent webinar discussion of this report here.
More on Latest
- Feeding Ourselves Thirsty: Is the food sector managing water risks? Who is leading and who is lagging? Jacob London from Ceres expands on their report’s key findings but beware – investors are asking more questions!
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