Last month, CDP Disclosure Insight Action published a report ‘Treading Water’ to celebrate World Water Day, in which it showed how companies are currently reporting greater exposure to water risks and yet withdrawing more water.
To learn a little more about this report and find out how businesses are tackling water-related issues, we interview Cate Lamb, Director of Water Security at CDP, on the not-for-profit charity's recent analysis.
Question: Could you specify the types of companies analysed in CDP’s Treading Water report (sectors, size, etc)?
A: In 2018, over 650 investors requested water information from 1,536 publicly listed companies in water-relevant sectors such as metals & mining; food, beverage & agriculture; and pharmaceuticals. The report analyses the information provided by the 783 companies that responded to this request.
We found that there has been an almost 50% rise in the number of companies reporting higher water withdrawals between 2015 and 2018
Q: Could you describe the main conclusions of the report?
A: The report highlights that although the number of companies identifying water risks is rising year on year, companies are withdrawing more water. We found that there has been an almost 50% rise in the number of companies reporting higher water withdrawals between 2015 and 2018, despite the fact that the number of companies setting targets to reduce water withdrawals doubled. 75% of companies now report exposure to substantive water risks, up from 70% in 2015.
Only 31 of all reporting companies showed enough progress to make CDP’s top-ranking ‘Water Security A List’ in 2018. 11 of these companies are based in Europe, 10 in Asia and 8 in the US. Those that have achieved leadership status include AstraZeneca, Diageo, L’Oréal and Microsoft. To achieve this score, companies must not only demonstrate that they regularly assess their risk exposure, but also show they have implemented a strategic response to these risks.
Retail performs worst out of all the sectors analysed in the report. With only 28 companies disclosing out of the 117 requested, retail is the least transparent of any sector, outstripping fossil fuels for the first time in nine years. Retailers also perform poorly on risk assessment and governance & strategy, with just 36% of companies publishing a water policy and only 32% undertaking comprehensive assessments of the risks they may face.
With revenues anticipated to reach US$28 trillion this year, this sector is more powerful than ever. Made up of companies near the top of the agricultural value chain, the retail sector has the potential to drive substantial improvements in water performance in meat manufacturers, crop growers and dyehouses around the world.
The retail sector has the potential to drive substantial improvements in water performance in meat manufacturers, crop growers and dyehouses around the world
Q: How do you think large businesses can make water use more efficient?
A: There is a range of tools and strategies available for companies that wish to improve their water efficiency, but ultimately, it is the strategic decisions taken by the CEO and the Board that will truly transform outcomes for a water secure future. Companies will not achieve the transformations needed until water is meaningfully embedded into corporate governance. Environmental and sustainability professionals can make incremental improvements to a company’s water performance. Associated with product development, market expansion, or resource allocation, all have the potential to significantly reduce or even eliminate a company’s negative environmental impacts. And increasingly, investors are looking to hold C-Suite decision makers accountable for their performance on water-related issues. Our analysis finds that just 31% of companies in high impact sectors - such as mining and electric utilities - have incentives in place for C-Suite executives.
Q: Which companies would you highlight for their positive performance with regards to water issue management, and which companies would you highlight for their underperformance?
A: All of the 31 companies on CDP’s Water Security A List should be commended for their efforts to improve their water management. These include AstraZeneca, Diageo, L’Oréal and Microsoft.
As an example, Microsoft includes water issues in its long-term real estate and datacentre investments. There is strategic value in these long-lived assets, and investment decisions are made with consideration of water issues on a long-term time horizon greater than 30 years.
In terms of lagging companies, the retail sector stands out this year. It is the least transparent sector - even more so than fossil fuels - and also performs poorly on risk assessment and governance & strategy.
Companies will not achieve the transformations needed until water is meaningfully embedded into corporate governance
Q: Could you highlight some of the most positive measures carried out by companies to reduce water consumption?
A: One of our A-list companies, Gap Inc., set and achieved a goal to save a billion litres of water in its manufacturing processes by the end of 2017. In 2018, the company unveiled a new goal to conserve 10 billion litres of water by the end of 2020. The new manufacturing goal is part of Gap Inc.’s water stewardship strategy, which includes a focus on lessening water impacts at the raw material and product design levels, as well as helping communities that are touched by its business to improve access to clean water and sanitation.
In 2015, Ford withdrew 3.9 cubic meters of water per vehicle produced and in 2017, this figure dropped to 3.7. The company is accomplishing this through a combination of reduced consumption, utilizing non-water-based technologies and tapping into alternative sources such as other companies’ wastewater. Reducing its reliance on freshwater will drive the company towards its 2020 target, to reduce water use per vehicle produced by 30 percent from 2015 to 2020. Ford recognises that the target represents a significant challenge but it is a vital step forward if they are to manufacture vehicles without withdrawing any drinkable water, which is Ford’s ultimate goal.
Q: CDP’s report mentions that retail performs worst out of all the sectors analysed. Why do you think this is?
A: The Retail sector covers clothing, food and drug retail – a sector with a unique position to effect change in farming, production, manufacturing, and consumer behaviour. While water use in direct operations may be limited to taps and toilets in stores, the production of food, textiles and pharmaceuticals in the value chain is water intensive and carries significant water pollution risks. Furthermore, retail locations and consumers themselves may be affected by drought or flood events, impacting on sales and business continuity.
One potential explanation for the underperformance of the sector is the failure to take ownership of, or responsibility for, water risks along the supply chain. For example, as water challenges become more widespread, retailers can no longer rely on switching their fruit or vegetable supplier when drought hits a particular region. They must commit to working with these suppliers to sustainably manage water resources in the river basin.
Q: What can retail companies do to improve their transparency when it comes to water data?
A: The first step for companies is to disclose, as this allows companies to understand their risk exposure. Retailers may feel that their water impact is low across their direct operations, but CDP’s questionnaire allows them to report on risks along the value chain. For example, UK supermarket Sainsbury’s reports Lake Naivasha in Kenya is the company’s most important sourcing region for flowers and vegetables. Sainsbury's sources high value and high-volume products from the region all year round, and estimates that 30% of the sourcing category - or £40 million - is threatened by water stress at the lake through over-abstraction, illegal abstraction, nutrient loading and non-compliance to water stewardship. Sainsbury’s estimate that this impact could materialise as soon as three years from now. In response, the company is engaging other stakeholders in the basin as part of the Imarisha project.
Clearly, retailers that leverage their procurement power can drive change at greater pace and scale through value chains. By engaging value chain partners on water issues, companies can gather a more complete picture of their water risk exposure and incentivize sustainable behaviour among both suppliers and customers.
And once companies understand their risk exposure, they can act on it by ensuring that water governance moves from the boiler room to the boardroom. Providing board members with the relevant information and tools and publicly monitoring progress against targets helps companies to plan for the transition to a water-secure world.
Our report found that companies suffered US$38.5 billion in financial impacts from water-related issues over just one reporting year
Q: What measures do you think governments can put in place to reduce the water usage of these companies?
A: Water touches all aspects of the economy, so policymakers and regulators must think beyond water regulation alone when they set and then enforce rules to enhance water security. The work of the Task Force on Climate-Related Financial Disclosures, the EU’s Non-Financial Reporting Directive and sustainable finance taxonomy are all policy efforts that could revolutionise water use among companies across the world. Policies like these help tackle the systemic drivers of water insecurity, rather than, say, a government simply mandating that companies use water a little more efficiently.
Q: Finally, what are the consequences (for the environment and for businesses) of withdrawing more water in the medium to long term?
A: Our report found that companies suffered US$38.5 billion in financial impacts from water-related issues over just one reporting year. The most common impacts were increased operating costs, reduced production capacity and fines. If companies fail to act, these financial impacts from water issues could rise even higher. Furthermore, the reputational damage from withdrawing more water, especially in areas where communities are feeling the brunt of water stress, could severely impact a company’s social license to operate. However, we are seeing that companies are not yet recognising the magnitude of this risk.
 Based on a sample of 296 consistent disclosers over four years