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June 18, 2011
Risk Management in Water-Intensive Sectors Insufficient
    by Robert Kropp

EIRIS reports on corporate responses to water scarcity, finding that most demonstrate limited or no evidence of taking action to mitigate water risks.


Water scarcity is already presenting challenges to the operations of companies in water-intensive industries, as a new report from EIRIS points out.

According to the report, entitled A drought in your portfolio: are global companies responding to water scarcity?, examples include the abandonment by Nestle Waters in 2009 of a plan to build the USA's largest bottling plant in California; severe rationing of electricity during droughts in France and Brazil; and the loss for three years of Coca Cola's license to operate in India.

EIRIS cites several more such examples of water scarcity impacting business operations already, but clearly the worst by far is yet to come. As the CDP Water Disclosure project states, "Demand for water is projected to outstrip supply by a staggering 40 percent by 2030, and an estimated half the world's population are likely to live in areas of high water stress by the same year."

According to EIRIS, the conditions described by CDP Water Disclosure have "the potential to put USD 63 trillion of global GDP at risk by 2050."

Are companies in water-intensive industry sectors effectively addressing the issues presented by water scarcity? In its analysis of the global 2000 companies, EIRIS found that 54% of them are exposed to water risks. Of those companies, "36% of companies have acknowledged water as an issue to be addressed; 22% demonstrate they monitor water consumption in relation to disclosure; 9.7% have set either short-term or long-term consumption targets and 9.7% have set water quality targets," according to EIRIS.

However, when EIRIS applies its methodology—focusing on the areas of governance, strategy, disclosure, and performance—to the actions of those companies in response to water scarcity issues, the firm found that "the majority of companies demonstrate limited or no evidence of taking action to mitigate water risks." A mere 0.22% of companies were found by EIRIS to have a good management response to water risk, and none had an advanced response.

Of those industry sectors most impacted by water scarcity, EIRIS found that companies in Forestry & Paper had the highest intermediate response, of 16.6%, followed by those in Mining & Metals and Food & Beverage. Companies in the Oil & Gas and Power Generation sectors had the lowest intermediate response. Chemicals & Pharmaceuticals had the highest good response, of 1.9%.

In its first annual report on corporate water usage, CDP Water Disclosure found similar involvement across 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 had only a 39% response rate.

What should investors be doing? According to EIRIS, investors should demand improved corporate reporting, encourage greater awareness of risks and opportunities, and expect companies to consider water scarcity issues on a par with climate change.

Investors have already begun engaging with companies on the issue of water. According to the Interfaith Center on Corporate Responsibility (ICCR), four shareowner resolutions filed this year requested comprehensive corporate policies on the human right to water. As You Sow identified six proposals addressing water usage by utilities and coal companies, as well as in corporate supply chains.

 

 
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