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February 22, 2010
Companies Exposed to Water Risks Are Providing Investors With Too Little Data
    by Robert Kropp

Report from Ceres, UBS, and Bloomberg Professional finds that reporting on water risks by companies in water-intensive industry sectors is insufficient.


Global water scarcity has become a material business risk about which investors need information, to the extent that the Securities and Exchange Commission (SEC) included a reference to the issue in its recent interpretive guidance for corporate reporting on climate change. However, according to a recent report from Ceres, the disclosure of water-related risks and opportunities by100 publicly traded companies in eight key industry sectors are insufficient.

Analytical support for the report, entitled Murky Waters? Corporate Reporting on Water Risk, was provided by UBS. Bloomberg Professional, which launched an environmental, social and governance (ESG) service after joining the Principles for Responsible Investment (PRI) in September 2009, provided the data for the report.

The eight water-intensive sectors from which companies were chosen for review and benchmarking in the report are beverage, chemicals, electric power, food, homebuilding, mining, oil and gas, and semiconductors. The highest-ranking sector was mining, followed by beverage. The homebuilding sector received the lowest overall scores.

The report ranked Diageo, a UK-based alcoholic beverage company, as having the highest overall score.

While the report found that 73 of the 100 companies disclosed some level of exposure to water risks, “the vast majority of these disclosures consist of vague, boilerplate language. They fail to reference specific at-risk operations or supply chains, and do not attempt to quantify or monetize risk,” according to the report.

Furthermore, while two-thirds of the companies reported data on total water use, only 17% reported this data on a local level. Only 21 companies disclosed quantified water reduction targets. No companies provided comprehensive water performance data for their supply chains.

Despite the reputational risks associated with water-intensive projects, the report also found that engagement with key stakeholders was weak as well, with less than one-third of companies consulting with stakeholders on water impacts.

The report recommended that companies include detailed risk assessments down to the local level in their reporting, as well as the management systems used for such assessments. Companies should disclose reduction targets, address water-related risks in their supply chains, and engage with stakeholders to preserve essential water resources.

The report concluded by recommending that investors engage with companies on water risks, ensure that asset managers assess companies on water and other ESG risks and opportunities, and support such initiatives as the Carbon Disclosure Project (CDP) Water Disclosure and the CEO Water Mandate.


 

 
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