Treading Water: Corporate Responses To Rising Water Challenges

By James Lott 16 May, 2019

How are companies acting on water risks? Are they doing enough? CDP's Lott summarises from their latest report

Water is the lifeblood of the global economy. And with 19% of water withdrawals coming from industry, and a further 70% from agricultural supply chains, companies have a vital role to play in meeting our global water goal – SDG6.

CDP’s water security program aims to achieve a water-secure world by focusing investors, companies and cities on measuring, understanding and reducing their environmental impact. In 2018, 4,969 high impact companies were asked to provide data about their efforts to manage and govern freshwater resources through CDP. In total 2,114 companies responded, up from 1,432 in 2016.

CDP’s latest Global Water Report – “Treading Water – Corporate Responses to Rising Water Challenges” – presents the analysis of 783 of the world’s largest publicly listed companies. The findings of the report show that companies are demonstrating some progress towards key aspects of better water management.

Latest global report shows companies are demonstrating some progress towards key aspects of better water management

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However, given the scale of the water challenges we face, the incremental changes we’re seeing from many companies – acting a little more efficiently or a little more collaboratively – are unlikely to cut it.

Increasing risks, increasing withdrawals

As water crises worsen, these high impact companies are increasingly exposed to risks that could threaten their reputations, revenue and financial stability. In 2018 water-related financial losses reported through CDP reached USD36bn. Yet, despite a growing awareness of water risks, companies are not yet reducing withdrawals.

Water-related financial losses reached USD36bn in 2018…

 

…yet, co’s are not yet reducing withdrawals

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As shown above, an unprecedented number of companies reported water facilities ‘at risk’ through CDP. However, this growing awareness of water risks is not yet correlating to companies lowering their water withdrawals in these hot spot areas.

76% of risks reported are physical…

 

…e.g. Lenovo faces a potential constraint growth for its operation due to water scarcity

CDP analyzed a group of companies who have consistently responded to us over the last four years. Of this group, 75% now report water risk exposure, compared to 70% in 2015. The majority of risks reported are physical (76%), relating to water scarcity and declining water quality. Chinese computer manufacturing company Lenovo for example, report a potential constraint to growth for its operations in the Yongding He river basin due to increased water scarcity.

Yet, despite almost a doubling of the number of companies setting targets to reduce water withdrawals over the four years, there has also been an almost 50% rise in the number of corporates reporting higher water withdrawals. This worrying trend holds true both for company-wide withdrawals but also for those at sites facing substantial risks. The rise is most pronounced in the food, beverage & agriculture, manufacturing and mineral extraction sectors, as well as in Asia and Latin America. The most common explanation that companies provide for increased withdrawals is an increase in production.

No of co’s setting targets doubled…

…but also ~50% rise in higher withdrawals especially in F&B, agri & other sectors

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Unlike carbon, we are not in a race to zero when it comes to water withdrawals

Unlike carbon, we are not in a race to zero when it comes to water withdrawals. But as water availability and quality decreases around the world, a failure by business to deliver even a modest reduction on this indicator is concerning.

Incremental action is no longer enough

Delivering a water secure future not only means better water management, but, importantly, better business management. Companies must not only show that they are regularly monitoring and managing water, undertaking comprehensive risk assessments, and assessing how water issues could impact financial performance. To deliver real change companies also need a strategic and transformational response to water risks.

For example, AstraZeneca has developed a global strategy to cap water use at 2015 levels through to 2025, while doubling revenue. Whereas Sony Corporation is diversifying its business model to develop new technologies in the agricultural sector that improve productivity and reduce environmental impact. The company estimates the opportunity could be worth USD4.1bn over the next four to six years.

Last year, 31 co’s make it onto the CDP Water A List incl. Diageo, L’Oréal & Braskem…

…look forward to welcome the first Chinese Water A-list co’s in the near future

CDP is raising the bar on corporate leadership – demanding even more from companies to make it onto the CDP Water A List – and last year 31 companies met the challenge. Those companies leading the way included global drinks company Diageo, French beauty giant L’Oréal and Brazilian petrochemical company Braskem. The vast majority of companies (752) still have a way to go. The challenge has been set and we look forward to welcoming the first Chinese water A-list company in the near future.

To find out more about how companies are taking action on water security, take a look at CDP’s full report.

Further Reading

• China Goes Circular: 6 Success Stories – China is already embracing a circular economy and businesses are following suit so which ones are leading the pack? Nick Jeffries from Ellen MacArthur Foundation expands
• I Want You To Panic – As we edge closer to a climate crisis, Thanos from Avengers Endgame doesn’t seem so crazy anymore. Hear what China Water Risk’s Woody Chan has to say for his generation & children everywhere
• Inside The World’s First Museum Of Climate Change In HK – It is the world’s first museum of climate change but what does it really do? Take a brief tour with its director Cecilia Lam and explore its four key initiatives from education activities to an action monitor
• Empowering Youth To Face Climate Change – Youths face great barriers to land a job or start their own initiatives in the field of climate change but Youth Climate Leaders is aiming to change that. Find out more from their Cassia Moraes & Fernanda Matsuoka
• No Planet B: HK’s School Strike For Climate Action – As the strike wound down we caught up with one of the speakers, South Island School’s Adele Lo, to find out her views on climate change and inaction in Hong Kong. Could she be our Greta Thunberg?

• Portfolio Water Footprinting: Investors’ Visual Path To Water Risk & Exposure – Pressure to mitigate & value water risk is rising. Ceres’ Investor Water Toolkit is one tool investors can use. Their Hugh Brown Jr. expands and shares their latest developments on visualising risk
• Dell’s Water Stewardship – Dell is not only reducing water use in its supply chain but also managing water as a shared resource at a watershed level through water stewardship. Find out more from their Jason Ho
• Water Stewardship: The Impact To Date – A new report finds there has been little evolution from business -as-usual in regards to water management. What behaviours need to change? How can this be achieved? We sat down with report authors James Dalton from the International Union for Conservation of Nature (IUCN) & Peter Newborne from the Overseas Development Institute (ODI)
• Corporate Water Reporting in China – CDP’s report shows potentially inadequate water risk assessment by Chinese companies & those with HQ’s in China. CDP’s Gillespy on their latest report and why it’s time to report on water risks