The latest Report on climate risk by the Carbon Disclosure Project shows that while many companies are increasingly aware of the potential impacts of water risk on their businesses,  they are lagging behind in putting measures in place to address the issue.

For the first time ever, the CDP Global Supply Chain Report 2014, ‘Collaborative Action on Climate Risk’, combines analysis of climate change and water related information disclosed by thousands of companies.

The report concludes that companies must take a wider view of supply chain sustainability, with carbon and climate risks linked to other sustainability issues, such as water and resource scarcity. The report says that companies can use these as levers to bear down on carbon emissions.

Commenting on the water-energy-carbon nexus, the extension of the CDP’s water program to supply chain participants has revealed high levels of awareness of water risks, but also lagging preparedness. However, the report says that leading companies are now beginning to recognize that the true value of water resides in business continuity, license to operate and brand value.

For many companies, the threat from climate change will manifest itself first by growing water risk such as water scarcity, water pricing or from flooding. For the first time in 2013, CDP sent its water disclosure information request to select suppliers of four pilot members in the supply chain program.

Four member companies identified 429 suppliers for whom the request would be relevant – and 229 responded, a 53% response rate. Of these, 33% of companies report that their operations are located in water-stressed regions and 36% believe that they are exposed to water-related risks with potential to generate substantive changes to their business. While 20% of companies reported that their supply chain is exposed to water-related risk, the report says few are ready to engage on the issue.

The water-energy-carbon nexus

The report highlights the fact that managing water risk plays a key role in securing licence to operate, enhance brand value and help ensure business growth. as competition for the resource grows, a growing number of companies are likely to face growing water risk irrespective of climate change.

The CDP’s water program has identified that water stress and scarcity, regulatory issues, or reputational damage from pollution can pose more immediate risks to some companies than are posed by climate change.

According to the report, companies are becoming more aware that not having adequate access to the quality and quantity of water required can mean operations are suspended or even closed, in some cases causing severe loss of revenue. Among physical risks, 52% of instances highlighted water stress or scarcity as the biggest concern. In terms of a timeframe for impact on operations from water risk, almost 72% of instances expected an impact from water within the next 5 years.

Almost one third of instances reporting regulatory risks related to water (31%) were concerned about higher prices for water, while a quarter cited concerns about higher compliance costs around water discharges.  More than one third raised reputational issues as a major concern.

The report says that the risks create an urgent need for companies to take action to address corporate water issues. Supply chain collaboration is also crucial - for many companies, the majority of their water risk is to be found in their supply chains e.g.from agricultural or other commodity inputs.

Only 18% of companies require key suppliers to report on water use, risks and management

However the report points out that even among companies acknowledging the risks that water can pose, preparedness is lagging behind. Only 53% companies disclosing information on water risks have water-related targets, highlighting the fact that companies are recognizing water risks but not enough companies are taking action to mitigate them. Only 46% of companies report data on water recycling within their operations, while only 35% of companies report have board-level responsibility for water conservation. Less than 1 in 5 companies (18%) require their key suppliers to report on their water use, risks and management – indicating the need for much more work with the supply chain on the issue.