Cost of water risks to business five times higher than cost of taking action
Mar 01 2021
The cost of water risks to business could be over five times greater than the cost of taking action now to address those risks, according to a new report by CDP, a non-profit that runs the world’s environmental disclosure platform.
The report, A Wave of Change, 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 do not address water risks, and estimate the total cost of addressing these risks at US$55 billion – less than one fifth of the amount.
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.
The water crisis must be approached with the same urgency and innovation as the COVID-19 crisis
“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 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, it is not just the volume of water available that matters. The cleanliness of that water is vital too. The analysis finds overall business action on water pollution is severely lacking, with just 4.4% of companies making progress against pollution reduction targets.
While more action is needed, some pioneering companies are integrating water stewardship into their business strategy and taking bold action to address water risks.
Examples of business leadership on water security 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 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.”
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. As this becomes mainstream, the pressure on companies to disclose and take action on water is expected to increase.
David Grant, Director: Global Water Stewardship, PepsiCo, said: “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.”
Antoine Vanlaeys, Chief Operations Officer, L’Oréal, said: “Water security is an increasingly important issue throughout the globe and L’Oréal has been committed for years to optimizing the water cycle at each step of the value chain, from sourcing, manufacturing to product consumption. In this context, the development of our “waterloop factories” represents a crucial milestone in our operations’ efforts to ensure sustainable water management”.
Kevin Rabinovitch, Global VP Sustainability, Mars, said: “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 added: “Clean and plentiful water is vital for the development and manufacture of the life-changing medicines that we produce at AstraZeneca. We recognize that access to water is a fundamental human right. We are committed to minimizing our impact on water and making a positive contribution to water stewardship in the river basins where we operate, and we are decoupling our sites’ water demand from business growth. Between now and 2025, we aim to maintain our water withdrawals at 2015 levels, while improving water quality, despite expecting significant business growth over this time. To support this goal, we have invested US$10 million in water efficiency projects and reduced withdrawals by 18% in 2019.”
Marissa Pagnani McGowan, Chief Sustainability Officer, PVH Corp, said: “Water security is central to our Forward Fashion commitments. We believe access to water is a human right, and safeguarding this natural resource in our most water-stressed sourcing communities is a crucial element in mitigating the climate crisis. At PVH, we recognize our responsibility and opportunity to invest in protecting key basins through collective action with our partners, peers, and suppliers to ensure we can continue to scale the impact of this important work. We value the continued efforts of CDP to provide consistent, transparent and measurable reporting that helps drive stakeholder action.”
Joji Tagawa, Senior Vice President, Chief Sustainability Officer, Nissan Motor Co., Ltd, added: “Water scarcity is a key focus of the Nissan Green Program, Nissan’s midterm environmental plan. We are committed to improving water management as we believe it is important to reduce water use to be a sustainable company. As just one example, our manufacturing plant in India has three harvesting ponds and 70% of wastewater is re-used. In Japan, Nissan has signed agreements with dozens of local governments to collaborate during times of natural disaster. Under one of the agreements, Nissan will provide electric vehicles free-of-charge to evacuation centers to supply electricity and carry drinking water from a local brewery to residents. Through these agreements, Nissan is contributing to the safety and security of local communities.”
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 collectively, making it key to meeting the Paris Agreement and net-zero climate goals.