A new report is warning that the cost of water risks to business could be more than five times greater than the cost of taking action now to tackle them - and investors are calling for greater transparency and action from companies to address the risks.

The report, A Wave of Change, by CDP, a non-profit that runs the world’s environmental disclosure platform, finds that the companies disclosing through CDP’s water security questionnaire in 2020 risk losing up to a combined US$301 billion in business value if they fail to address them. THE CDP estimate the total cost of addressing these risks at US$55 billion – less than one fifth of the amount they stand to lose if they don’t take action to tackle them.

Cate Lamb, Global Director of Water Security at CDP, commented:

“Water shortages are affecting more than 3 billion people worldwide, with the amount of freshwater available per person having plunged by a fifth over two decades. The water crisis must be approached with the same urgency and innovation as the COVID-19 crisis – and the business case for action is clearer than ever.

“Some of the world’s thirstiest companies are already innovating by reusing water in creative ways, developing water-smart products, and remodelling their strategies to adapt to the water crisis. We can turn this situation around, but we need much more transformative action.”

“ As investors pay closer attention to companies’ management of water risks, CDP is calling for all companies to develop ambitious targets to reduce water withdrawals and eliminate water pollution, including net-zero water targets. Companies must take bold action now to transform their business models.”

In the last year, companies reporting to the CDP have made progress on water use, with nearly two thirds of companies reducing or maintaining water withdrawals, thanks to the implementation of measures to reuse and save water.

However, the report says that in addition to taking action on water availability, the companies also need to take action on water quality. The analysis finds overall business action on water pollution is severely lacking, with just 4.4% of companies making progress against pollution reduction targets.

Nevertheless, some pioneering companies are already integrating water stewardship into their business strategy and taking bold action to address water risks.

Examples of business leadership on water security highlighted in the report include:

Zero water withdrawals and decoupling

Nissan’s rainwater harvesting and wastewater recycling allows its India site to be independent of external water sources for 130 days; L’Oréal’s “waterloop factories”; Ford Motor aiming to eliminate water withdrawals from manufacturing processes;AstraZeneca to maintain water withdrawals at 2015 levels, while improving water quality, despite doubling revenue over the next five years.

Aiming for elimination of pollution

PVH and Kering aiming to eliminate hazardous chemicals from their production processes. PepsiCo is investing in reverse osmosis to improve the quality of wastewater, with 99% of wastewater meeting its internal standards that are more stringent than local regulations.

Developing new green products

Unilever’s “dry” personal care products for water stressed areas; BASF’s new chemical products that reduce pollution during the product use phase such as a biodegradable de-icer.

Combining climate action and water action

Mars’ introduction of wet-dry irrigation for rice cultivation is expected to reduce water consumption by 30%, increase farmers’ incomes by 30% and reduce carbon emissions; Samsung is reducing the water and carbon footprint of semi-conductors.  

Investors worth $110+ trillion urging companies to report on water security this year

Investors are urging greater transparency and action from companies on water risks. Over 590 investors with over US$110 trillion in assets are requesting companies to disclose on water security impacts, risks and actions through CDP’s platform in 2021.

Carine Smith Ihenacho,Chief Governance and Compliance Officer, Norges Bank Investment Management, said:

“Responsible investment is a key priority for the Norwegian Government Pension Fund Global, (covering around US$1.3 trillion in assets) as it supports the long-term economic performance of our investments and reduces financial risk.

“Water scarcity and pollution can pose business risks, and the way water is managed by companies can influence their profits – and even affect the profits of other companies we invest in that are dependent on the same sources of water.

“Every year we assess companies’ water management efforts across indicators of governance, strategy, risk management, and disclosure of metrics and targets. CDP’s analysis shows that the cost of mitigating water risks for companies is usually much lower than their potential financial impact. This illustrates a strong business case for taking action now, to improve financial performance later. Companies should heed this advice, transparently report on their water risks and take effective action to manage them.”

Increasing investor concern about loss of nature and biodiversity

Investors are also increasingly concerned about the loss of nature and biodiversity, which includes water as a vital element to all ecosystems. Many financial institutions have recently signed up to the new Task Force on Nature-related Financial Disclosures (TNFD)and other initiatives like Finance for Biodiversity.

According to the CDP as this becomes mainstream, the pressure on companies to disclose and take action on water is expected to increase.

Just five companies reported ‘nature-based solutions’ and nine reported ‘supporting river restoration measures’ as risk responses. However, many more companies (124) are setting targets or goals linked to nature-based approaches, up from 113 in 2019 – indicating that these approaches are a growing aspiration, the report says.

David Grant, Director: Global Water Stewardship, PepsiCo, commented:

“PepsiCo is committed to ensuring that wherever we operate, watersheds are healthier because we’re there. It’s a business imperative – we need a sustainable supply of fresh water to make our consumers favourite foods and beverages – It’s also the right thing to do. That’s why PepsiCo is making significant investments in waste-water treatment. This not only reduces potential pollution but also offers PepsiCo an opportunity to recover treated water and close the loop in our own manufacturing processes – supporting our overall drive towards a circular economy.”

Kevin Rabinovitch, Global VP Sustainability, Mars, added:

“Protecting water security is vital to the long-term sustainability of our agricultural supply chains, such as mint and rice, and the livelihoods of farming communities which rely on it.

“At Mars, we’re taking action such as following best practice from the Sustainable Rice Platform, where we’re making progress with techniques such as alternative wetting and drying irrigation in rice farming. These techniques are driving win-wins by increasing farmer productivity and improving livelihoods, whilst also reducing our environmental and climate footprint, including our water usage and carbon emissions.”

Katarina Ageborg, EVP Sustainability, Chief Compliance Officer and President, AstraZeneca AB said that the pharmaceutical giant was committed to minimizing its impact on water and making a positive contribution to water stewardship in the river basins where it operate.

AstraZeneca is decoupling its sites’ water demand from business growth - between now and 2025, the company is aiming to maintain water withdrawals at 2015 levels, while improving water quality, despite expecting significant business growth over this time. To support this goal, the firm has invested US$10 million in water efficiency projects and reduced withdrawals by 18% in 2019.

Top water risks include water scarcity, flooding, drought and declining water quality

The top water risks faced by companies are increased water scarcity, flooding, drought, severe weather events, and declining water quality.

The most common responses by companies across sectors and regions are adopting water efficiency, reuse, recycling or conservation measures and developing flood emergency plans. While those are most common, most of the money is being spent on capital expenditure, infrastructure, pollution control, new technological solutions and complying with local regulatory requirements.

The report is based on data from 2,934 companies that disclosed through CDP’s water security questionnaire in 2020, at the request of 515+ investors with US$106 trillion in assets. This represents a 20% increase in disclosure compared to 2019, despite the challenges posed to companies by COVID-19. Over 9,600 companies in total disclosed environmental data through CDP in 2020, including climate change, forests and water data.

The current use, storage and distribution of water and the lack of wastewater treatment contributes 10% of global greenhouse gas (GHG) emissions collectively3, making it key to meeting the Paris Agreement and net-zero climate goals.

Click here to download the report A Wave of Change