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November 16, 2010
CDP Water Issues First Annual Report on Corporate Water Usage
    by Robert Kropp

Backed by 137 institutional investors, the Carbon Disclosure Project initiative asks 302 large companies in water-dependent industry sectors to report on water usage.


Launched one year ago by the Carbon Disclosure Project (CDP), CDP Water Disclosure issued its first requests for information on corporate water use this year, targeting the 302 companies in the FTSE Global 500 that are from water-intensive industry sectors.

This month, CDP Water Disclosure issued the first of what it promises to be an annual series of reports on corporate water usage. Entitled
CDP Water Disclosure 2010, the report, which was written by Environmental Resources Management (ERM), details the responses of 150 companies to the initiative's requests for information.

The requests were sent to the 302 companies on behalf of 137 institutional investors with $16 trillion of assets under management. The number represents a subset of the 534 institutional investors with $64 trillion of assets under management on whose behalf CDP requests corporate disclosure on climate change information.

SocialFunds.com spoke with Paul Simpson, the recently appointed CEO of CDP, about the support for the initiative from the investment community. Formerly the COO of CDP, Simpson has been with the organization for more than nine years.

"When we started on climate change in 2002, we had 35 investors with $4.5 trillion of assets," Simpson said. "We definitely see strong interest from some of the investment community, but perhaps the overall investment community isn't as aware of this issue as it should be." Given the rapid growth of investor support for CDP over the years, as well as the growing awareness of water issues as material for companies, Simpson expects that investor support for CDP Water Disclosure will grow rapidly as well.

In his foreword to the report, Paul Dickinson, Executive Chairman of CDP, gives context to CDP Water Disclosure by asking, "So is water the new carbon?" In some respects, parallels can be drawn, as both water and carbon present challenges to the sustainability of business operations, challenges that can be addressed by effective disclosure of mitigation strategies and identification of opportunities.

On the other hand, as Dickinson points out, "Water is very different from carbon. Whereas sustainable alternatives to carbon do exist, for water there is no substitute."

According to the report, "The CDP Water Disclosure questionnaire brings insight into the challenges…to companies by requesting information on their water strategies and management plans, on their water-related risks and opportunities, and on their water use within the context of local scarcity or abundance."

It being but the first year of CDP Water Disclosure, "That companies are saying this is a real business issue for them now is significant," Simpson told SocialFunds.com. "Companies are realizing that water is a risk, and we're already starting to see a risk management approach. Sixty-seven percent of respondents say that water management is a board-level responsibility, and 89% have developed water policies. A lot of companies see business opportunities from water as well, from water infrastructure to water treatment, and even desalination plans." According to the report, 60% of respondents have set water-related performance targets.

That risk management processes are already in place for so many companies reflects their assessment that, as the report found, "Water is a current, not a future, corporate issue." More than half the risks identified were considered by companies to be either current or near-term. Thirty-nine percent of respondents have already experiences detrimental impacts, such as "disruption to operations from drought or flooding (in one case resulting in $100 million in remediation costs), declining water quality necessitating costly on-site pre-treatment, increases in water prices, and fines and litigation relating to pollution incidents," according to the report.

Responses to the questionnaire came from 25 countries, with the highest number, 59, coming from the US. Fifty-seven percent of US-based companies responded to the questionnaire, which, considering the economic recession and the fact that US companies tend to lag behind their peers in reporting, is significant, Simpson said. The response rate in the UK, for instance, where corporate reporting is more entrenched, was 64%, representing 18 companies.

The response rate varied widely among industry sectors. Responses from the Chemicals and Pharmaceuticals sectors were high (100% and 81%, respectively), while responses from the Oil & Gas sector was only 29%. The Utilities sectors, also a heavy user of water (Simpson pointed out that during a drought in France earlier in the decade, nuclear power plants had to shut down due to lack of water for cooling operations), had only a 39% response rate.

Explaining the high response rate from chemical and pharmaceutical companies, Simpson said, "Sectors like Chemicals and Pharmaceuticals have had some degree of regulation addressing the cleanliness of water leaving their facilities and the effect on water of the usage of their products."

"I find it harder to understand why Oil and Gas and Utilities, which also use a lot of water in their operations, have such a low response rate," Simpson continued.

While almost every respondent could identify water risks in their own operation, only slightly more than half could do so for their supply chains, indicating an important area for improvement. Simpson said, "For many companies, the most significant water-related risk is in their supply chains. But many companies don't have a good understanding of what that is. CDP has a
supply chain program to help assess risks from climate change in corporate supply chains, and we've already heard from companies who say they want help with this on water."

Asked what recommendations he has for companies, Simpson said, "Certain sectors need to be conducting risk analyses of water throughout their operations. They should be measuring their water usage, but the total water usage of a company isn't the most meaningful metric. What is crucial is to understand where they are using water in existing or soon to be water-stressed areas."

"Companies should be reporting water efficiency targets," he continued.

As for the future priorities of CDP Water Disclosure, Simpson said, "We will be expanding geographically to countries where we see water as particularly important. Next year we will be doing this in Australia and South Africa."

 

 
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