Companies are not moving fast enough to mitigate the growing water risk, and as such suffered $14 billion in water-related financial impacts from issues such as droughts, flooding, tightening environmental regulations, and increased water stress from climate change, according to a new report from CDP.
Global non-profit group CDP, formerly the Carbon Disclosure Project, published a new report this week, Thirsty business: Why water is vital to climate action, in which it details the results of information provided to it by 607 companies — which in turn was provided in response to CDP’s request for information made on behalf of 643 institutional investors with $67 trillion in assets. The response is a good turnout, and up on last year’s turnout: Of the 1,252 companies CDP approached in 2016, 48% responded, up from 37% in 2015.
CDP’s analysis revealed several key findings, top among them that water-related issues such as drought, flooding, increased water stress fueled by climate change, tightening environmental regulation, and the cost of cleaning up water pollution and fines, cost businesses $14 billion in 2016, over five times the $2.6 billion reported in 2015 (though that will be at least in part because more companies reported).
Additionally, CDP found that companies are simply “not moving fast enough to address the sustainable management of water.” Specifically, CDP found that corporate disclosure “around key metrics, such as tracking water use, assessing risk, and ensuring strategic management shows that performance has not improved markedly since last year.” CDP’s report evaluates corporate performance over five key water management-related metrics: Year-over-year trends show that only 61% of companies tracked their water use, up only 3% from 2015.
“This year’s findings offer two clear lessons for the private sector,” said Paul Simpson , CDP’s CEO. “Firstly, that water risks can rip the rug from right under business, posing a serious threat to bottom lines. Secondly, and crucially, that water will be a fundamental global commodity in the transition to a low-carbon economy. Every drop of clean, sustainable water will be essential for the emissions reduction activities countries and companies have planned. This is a wake-up call to companies everywhere to take water more seriously.”
Water related issues might not necessarily jump out at us as a prominent issue for the corporate world, but CDP’s report has found that nearly every business sector analyzed saw an increase in water-related financial impacts during 2016, with utilities, materials, and energy companies disclosing the most substantive impacts. Japanese power giant Tepco disclosed that it had spent nearly $10 billion over the past financial year addressing groundwater pollution from the Daiichi nuclear power plant, a result of the 2011 tsunami and subsequent nuclear reactor meltdown. Meanwhile, water supply disruption to the mines run by African Rainbow Minerals cost them $26 million in lost revenues last year — over a third of its annual income.
“For a long time companies have taken water for granted as a free and plentiful resource,” said Morgan Gillespy, the report lead author and CDP’s head of water.
“But these assumptions are unraveling as the impacts of climate change gather pace. From the $100 billion worth of energy infrastructure at risk from rising sea levels in Louisiana to Chinese industry facing tightening restrictions on water use, investors are right to worry about the impacts of water risks on their assets.
“There are reasons to be hopeful however. The growing list of companies on our Water A List is testament to the fact that many executives have understood the value in better water management and are seeking to raise the bar. And, as our report shows, this will make all the difference to companies working to fulfil their carbon reduction potential and the sustainable development goals.”