Corporate Focus on Water Risk Grows, Lags Behind Climate Change Concerns

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By Patrick Ambrosio

A growing number of companies recognize that water-related risks could significantly affect business operations, though water is not nearly as high on the corporate agenda as climate change, according to a report.

The Carbon Disclosure Project Water Disclosure global report shows the share of companies with water management plans rose in 2011 compared with the previous year, as did the percentage of companies that recycle and reuse water.

Some 93 percent of Global 500 respondents reported having a water management plan, compared with 89 percent in 2010, according to the report. Additionally, 58 percent reported this year that they recycle and reuse water, up from 42 percent in 2010, and the percentage that was able to report on water withdrawals rose from 86 percent last year to 95 percent in 2011.

While recognition of water as an issue is growing, it still lags behind climate change as a matter for scrutiny by corporate boards.

Some 57 percent of respondents reported board-level oversight of water-related policies in 2011, compared to 94 percent reporting board-level oversight of climate change issues. On water, the figure for board-level oversight actually fell from the 2010 figure of 67 percent, although the other metrics for corporate interest rose this year.

Effective water management is expected to grow more important in the future due to increased demand for water caused by population growth and industrialization, according to the report, which was released Nov. 16. Over one-third of respondents reported already having suffered water-related business impacts, with associated costs as high as $200 million.

The second annual report is based on questionnaires sent to 315 companies on the Global 500 index that operate in water-stressed locations or industry sectors.

Results Show Progress

Marcus Norton, head of CDP Water Disclosure, told BNA Nov. 18 that he is “quite optimistic” about the results due to an increased response rate compared to the 2010 report.

The response rate from Global 500 companies increased to 60 percent in 2011, compared to 50 percent in 2010. Norton said that this shows that water management is “definitely riding up the agenda” for companies that are exposed to water-related risks.

However, Norton said that he still believes that many companies are “misunderstanding” the level of risk posed by water because the price of water does not reflect its true value.

He said that although the price of water is far less than that of other commodities that businesses use, the study illustrates a number of near-term risks than can affec business continuity, including water scarcity and flooding.

The Southern Co. reported $200 million in additional electricity costs required to compensate for reduced hydroelectricity production during a drought.

Although risks vary with geography, companies need to view the watershed that they operate in as a shared resource and understand what they are discharging into the water, Norton said. The increased cost of regulatory compliance is another near-term risk identified by respondents.

Norton also said that companies need to take a closer look at their supply chain because it is “where the real risk can lie.”

Energy Sector Lags

The study found that the energy sector had the lowest level of board oversight despite having a greater level of risk exposure compared to other sectors.

Only 36 percent of respondents within the energy sector reported having board-level oversight of water-related policies, strategies, or plans, even though 72 percent of respondents reported exposure to water-related risk.

However, Norton said that the 47 percent response rate from the energy sector shows that some energy companies are leading the way on addressing water issues.

“It does indicate that there is some engagement,” Norton said. “The ones that are not responding can learn from their peers.”

Norton added that recent events, including damaging floods in Thailand and droughts, may lead companies to place more focus on water management issues.

“Sometimes it takes these dramatic events to wake us up and make us realize that we are vulnerable,” Norton said.


The 2011 CDP Water Disclosure Global Report is available at https://www.cdproject.net/CDPResults/CDP-Water-Disclosure-Global-Report-2011.pdf .