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June 18, 2012
Corporate Disclosure of Water Risks Should Include Quantitative Data
    by Robert Kropp

Ceres follows up on a 2010 study of corporate reporting on water risk with a new report that notes improvements, but says also that quantitative data and supply chain information is lacking.

In 2010, when Ceres reported on the disclosures relating to water risk by 82 US companies in water-intensive industry sectors, only eight companies reported that climate change was likely to compound water-related physical risks to their business operations. Seventy-six percent of companies included in the 2010 report, entitled Murky Waters: Corporate Reporting on Water Risk, disclosed physical risks relating to water in their financial filings.

Then, also in 2010, the Securities and Exchange Commission (SEC) issued interpretative guidance, "intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors," the Commission stated.

In a report released today, Ceres revisited the disclosures on water-related risks by the same 82 companies, and noted improvement in several areas. However, the report states, "though overall corporate disclosures of water-related risks in financial filings have increased since 2009, much reporting remains weak and inconsistent especially in regard to data on overall water use, financial exposure and potential supply chain risks."

Positive developments noted by Ceres include an increase, to 87%, of companies disclosing water-related physical risks. The number of companies linking climate change to water risk also increased, from eight in the earlier report to 22.

On the other hand, quantitative data on corporate water use, as well as targets for improving performance, remain infrequently disclosed. Water use data "helps investors understand the exposure of their portfolio companies to current and future water stress, as well as potential regulatory developments," the report states.

Also, disclosure on water-related risks in corporate supply chains is insufficient. The report points out that companies in the food industry are particularly vulnerable to weather disruptions in their supply chains; however, only four of the 11 food companies analyzed disclose specific commodities or regions facing potential risks.

Ceres concludes its report with several recommendations, including ongoing analysis by companies of water-related risks and inclusion in their disclosures of relevant quantitative data. Companies should also ensure that their disclosures comply with the SEC's guidance on climate change reporting, and provide investors with risk management strategies.

"Most companies recognize the need to disclose water risk, but so far the information they are providing lacks specificity and the hard numbers their shareholders require to invest responsibly," said Mindy Lubber, president of Ceres. "Disclosure is the first step, and it must be followed quickly by action."


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