Investors fear water risks
November 5, 2014CDP released its annual Global Water Report on Wednesday, saying that 68 percent of multinational corporations had reported exposure to water risks that could potentially have an impact on their business, operations or revenue.
Some 22 percent of the companies polled said they were already anticipating that issues around water could limit the growth of their business, said the London-based non-profit organization, which promotes sustainable economic development.
CDP's analysis is based on the water management data of 174 companies listed on the FTSE Global 500 Equity Index, which was provided to the NGO at the request of 573 institutional investors with $60 trillion (47.9 trillion euros) in assets.
"The potential for water-related problems to damage brand value or limit corporate growth is increasingly understood. We have seen the number of investors seeking accountability from companies on this issue through CDP rise more than fourfold in just four years," CDP Chief Executive Paul Simpson said in a statement.
In the report, companies identified more than 850 individual risks from water scarcity and quality, saying they had the potential of putting them at a competitive disadvantage, by potentially leading to the closure of operations and by decreasing shareholder value. The effects would be "most keenly felt" in emerging markets where companies see new opportunities for growth, such as Brazil, China, India and Mexico.
Rising awareness
Companies were, however, beginning to respond to these risks, CDP said, with three quarters of them evaluating how water quality and quantity affects their growth strategy. Moreover, water risks were increasingly becoming a "boardroom issue" as 62 percent of the companies were already dealing with the issue at such a high management level, compared with 58 percent in 2013. Some 90 percent of the responding firms had integrated water into their group-wide business strategies, while 82 percent had set goals to reduce water use, the report added.
In addition, multinational corporations were investing more to reduce water-related stress to business and to capitalize on cost savings or increased revenues. CDP named German chemical company BASF as an example, which had estimated that water saving technology and recycling as well as treatment products for drinking water offered the company potential sales of $1 billion up to 2020. US electronics manufacturer Cisco was already saving $1 million a year, using less water in its production, the report noted.
Corporate stonewalling
Despite growing awareness for water risks, CDP criticized that many big corporations were still reluctant to reveal company data, let alone take action.
Disclosure levels of the Global 500 have "not kept up with investor demand for information," but they have stagnated over the past year. About 42 percent of the companies requested by investors to divulge water-related information have failed to do so.
The CDP report quoted Constantina Bichta, governance researcher at Boston Common Asset Management, as saying that corporate negligence was something investors were deeply concerned about.
"They may not be able to provide their core products and services, or may lose the ability to expand their business," she said.
According to CDP, the energy sector has the lowest level of disclosure. The largest persistent non-disclosing companies are sports gear manufacturer Nike and oil company Exxon Mobil.