In Pursuit of Standardisation

By China Water Risk 12 June, 2012

Sophie le Clue reviews the difficulty in standardising disclosure despite investor demand and company questionnaire fatigue

Non-financial reporting is becoming a term of the past
Questionnaire fatigue recognised and working towards standardisation
China is in a unique position to lead in setting water standards globally

Coming up the curve

Historically, the lack of qualitative environmental performance data has been a hindrance to the incorporation of ESG metrics into investor analysis. An issue close to CWR’s heart.

Two of the main challenges facing companies wishing to disclose data and for investors wishing to analyze environmental metrics are the collation of the right data and the availability of relevant benchmarks.

In recent years however there has been remarkable progress in the disclosure of corporate environmental performance via sustainability reporting. This has largely been a result of:

  1. changing attitudes to the issue, as sustainability has become more mainstream; and
  2. increased availability of guidelines and management tools to facilitate data collection.

Progress nevertheless has been slow; in the eighties the practice of disclosing sustainability data was nascent, most reporting focused on the environment, health & safety and more latterly CSR . Sustainability, a far more holistic concept, was not really embraced (notably by the more forward thinking corporates) until the mid to late nineties, following the 1992 Earth Summit and the introduction of Agenda 21, which coined the term sustainable development and highlighted its relevance to the business world.

Disclosure efforts moved forward with the advent of reporting awards such as the Association of Chartered Certified Accountants’ (ACCA) Sustainability Reporting Awards in 1991 and the arrival of the Global reporting Initiative (GRI) in 1997. A further boost was provided by the Carbon Disclosure Project (CDP) breaking ground in 2002 with targeted information requests from 35 institutional investors representing assets of US$4.5 trillion. By 2011 CDP represented 551 investors with assets of US$71 trillion. In addition to collating data, CDP provides a useful benchmark regarding companies’ willingness to provide data.

Amidst some unease in the early years over which of the various reporting guidelines to follow, corporate sustainability reporting eventually took off, at least in developed countries. In Asia, progress as might be expected has been slower, and after a glacial start, China is coming up the curve quickly, after only seven companies reporting in 20051, now there are hundreds. Driving disclosure is government pressure as well as civil society and perhaps surprisingly the Shenzhen and Shanghai Stock Exchanges. Just across the border in Hong Kong however,  investor research house ‘Responsible Research’ released a report in 2010: ‘ESG Uncovered – Asian Sustainability Rating™ 2010’, which found that as a market, Hong Kong was one of the poorest disclosers of information. Food for thought for the Hong Kong Exchanges and Clearing Limited.

In 2006 CDP started sending information requests to China and published its first dedicated China report in 2008. Overall response rates though have remained relatively low when compared to the global CDP universe

Water metrics meet financials

What is particularly encouraging, is that the battle to obviate such terms as extra financial reporting and non-financial reporting when talking about sustainability, is being won, not just overseas but here in Asia. After all, sustainability issues such as water, present real financial and operational risks as prices start to rise and water tables fall against a background of ambitious growth targets.

Early movers are now incorporating material sustainability data into corporate annual reports and water metrics for example are appearing right next to dividends per share. One such company that has taken this approach is Swire Pacific Limited, one of Honk Kong’s leading listed companies with operations in property, aviation and beverages amongst others. See its recently published 2011 Annual Report and CWR’s interview with Philippe Lacamp, Swires’s Director of Sustainability.

Looking forward, a corporate headache?

As water is an environmental issue that can be quantified, unlike the value of biodiversity by comparison, it might reasonably be expected that material corporate water data would be easy to come by. Not necessarily so. Reporting water data can be a complex matter and unlike the carbon issue as an example, its materiality as a business risk is closely linked to the local context and the availability and sensitivity of local water supplies.

Water reporting should be broken down by plant and locality in ways that other environmental issues need not be.  As advocates of reporting have grappled with this, various water accounting and risk assessment methodologies such as the Water Footprint Network (WFN)WBCSD’s Global Water Too and WRIs Aqueduct, have been introduced over the years.  In addition, in 2009 CDP expanded its scope to embrace water disclosure, and in April of this year, WWF’s impressive Water Risk Filter (WRF) was launched. Conversely, this may not make life easier for the target audience and signs of unease are appearing again.

Recently, companies have been lamenting to CWR that now there is too much demand for data and limited resources – internal reporting needs are being pitted against an increasing number of external information requests, such that valuable time must be spent fulfilling ‘same-same but different’ sustainability reporting/questionnaire needs.

Questionnaire fatigue seems to be setting in.  Whilst companies grapple with the different information requests, reporting guidelines and water accounting methods, investors seem to want more detailed information than is being provided and what’s more, information that is consolidated, thus saving precious analytical time. Some companies for example are feeling compelled to respond to CDP – while having already produced a sustainability report, and thus feel aggrieved over a perceived doubling of effort.

The good news is that the likes of CDP, GRI and WWF appear to recognize the issue. Starting with one of the most recent water initiatives, WWF’s Water Risk Filter indicates it is working together with the Carbon Disclosure Project (CDP) :

to ensure that you [companies] have a head start in filling in the next CDP questionnaire for water. We provide all the information that is available for your company on a portfolio level in the same structure as the CDP Water Initiative questionnaire. The site supplies this report in Word format, so that you can copy and paste your answer into the CDP questionnaire, which gives you the opportunity to amend your answers.

Source: WRF


WWF indicates that its WRF combines the functionality of some of the existing tools into one tool, and provides input for other tools. For example, ‘it uses the detailed river scarcity data from WFN, while providing answers to >80% of the questions of the CDP Water questionnaire’.

GRI, which will be releasing the fourth edition of it reporting guidelines (GR4) later in the year also indicates that it wants to make the process easier in the current environment, stating that it has made ‘an extra effort to harmonize with other relevant international reporting guidance’ as well as improving considerably guidance around the definition of what is material (from different perspectives).

Where does this leave China?

What makes life easier for both corporates and investors are standards, something to work toward and a benchmark for analysis.  Interestingly, in December 2011, the European Water Standard was released after piloting extensively with leading corporates such as Coca-cola . If successful, such a standard will push brands and hopefully supply chains to adhere to recognised principles/criteria to improve water stewardship and create the basis for objective reporting. And what better place than China for standards to make a mark?

China is after all in a unique position – having the incentive and increasingly political will to address a growing water crisis urgently. A vast economy that clearly recognises the very real risk of insufficient water, the need to fuel continued growth, and as the world’s manufacturing hub – an entrepot for water intensive industries. As such, it seems that despite its problems, China has the opportunity to be a water leader.

1Sustainability Reporting  in  China’s largest Corporations, Pacific Sustainability Index Scores , The Roberts Environmental Centre, 2009


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China Water Risk
Author: China Water Risk
We believe regardless of whether we care for the environment that water risks affect us all – as investors, businesses and individuals. Water risks are fundamental to future decision making and growth patterns in global economies. Water scarcity has emerged as a critical sustainability issue for China's economy and since water powers the economy, we aim to highlight these risks inherent in each sector. In addition, we write about current trends in the global water industry, analyze changes occurring both regionally and globally, as well as providing explanations on the new technologies that are revolutionizing this industry.
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