The entry into force of the Paris Agreement marked a shift in gears in the global effort to address climate change. For all countries, the focus moves from planning to delivery – to the implementation of policies and measures that will deliver the ambitious goal to hold the increase in global temperatures to well below two degrees.
Water was not explicitly mentioned in the text of the Paris Agreement, but having a stable and sustainable supply of water will be central to efforts both to adapt to the effects of climate change, and to mitigate rising greenhouse gas (GHG) emissions.
A stable supply of water is vital for many of the technologies that will help reduce emissions
Many of the most serious impacts of climate change will be felt through water scarcity or flooding from extreme weather events or sea-level rise. Further, a stable supply of water is vital for many of the technologies that will help to dramatically reduce emissions. Water stewardship is an imperative not only for its own sake, but also to enable an effective response to climate change.
“Thirsty business: Why water is vital to climate action”, published by CDP in November 2016, explores the need for the private sector to transition to improved water management practices in light of the critical role water will play in the transformation to a low-carbon economy. It summarises and analyses 607 disclosures made by the largest, publicly listed companies in the world with the greatest ability to impact on water resources. It is aimed at companies facing water risks and opportunities, and investors seeking to better understand how water issues might impact their portfolios.
The report finds:
Water risks are rapidly materialising for business
Over a quarter of companies have experienced detrimental impacts from water this year with total reported financial impacts of USD14 billion, a five-fold increase from last year. In addition, companies expect over half (54%) of the 4,416 water risks they identified to materialise within the next six years.
All sectors except Consumer Discretionary saw increased financial impacts this year, although much of the increase was driven by two sectors: Utilities and Materials.
>1/4 of co’s experienced detrimental impacts from water in 2016 with total reported financial impacts of USD14bn
In Materials, South African miner Gold Fields Limited reported a USD92 million impact from the capital and operating costs of a diesel-fired power generation plant. That investment, comprising 14.5% of the company’s total capital expenditure in 2015, was required to make up for declining availability of power from Ghana’s fleet of hydropower plants. This illustrates the inter-connectedness of corporate efforts to address climate and water issues and brings the financial risk that companies face from water sharply into focus.
Corporates are not moving fast enough
This year has seen the largest response yet to CDP’s annual request. Of the 1,252 companies approached in 2016, 607 responded, representing 48% of those approached, up from 405 out of 1,073 companies approached last year. While these figures are moving in the right direction, there is still a lot of room for improvement.
|“We hope that CDP can draw in many more companies to this kind of disclosure, because it is the market that matters to us, not just any individual company. Marketwide disclosure is what we value in these efforts.”
PGGM (USD 200bn)
Source: CDP Global Water Report 2016
Transparency and disclosure is fundamental to modern economies and efficient investment, and it is the starting point of the work CDP does on behalf of its signatories. Without transparency on the crucial environmental metrics we track, it is impossible for investors – and difficult for the companies themselves – to understand the risks and opportunities they face and the steps they are taking to ensure water security.
Year-on-year disclosures through CDP show that companies are not moving fast enough to address the sustainable management of water. 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.
A new international regime to cut carbon creates more demand and pressure to improve water management
The Paris deal is now international law, meaning the nearly 200 countries that submitted climate plans are now mandated to deliver emissions reductions.
CDP’s analysis of the emissions reduction activities disclosed by companies shows that nearly a quarter (24%) of these activities depend on having a reliable supply of water for their success. These activities are estimated to cut 125 million metric tonnes of carbon dioxide emissions annually, the equivalent of shutting down 36 coal-fired power plants for a year.
Encouragingly, however, better water management can help reduce energy use and the associated emissions. More than half (53%) of disclosing companies report that more efficient use of water has led to lower GHG emissions, showing that water can potentially make – or break – the low-carbon transition. Consumer staples giant Nestlé SA for example saved more than 80,000 tons of CO2e in 2015 at the same time as using 1.7 million m3 less water.
53% of disclosing co’s reported that more efficient use of water has led to lower GHG emissions
“… water can potentially make – or break – the low-carbon transition.”
A pivot towards water stewardship is underway
In 2015, CDP published its first Water A list – highlighting eight companies that achieved an ‘A’ rating in accordance with its water scoring methodology. This year, CDP welcomed 24 companies to its A list, those companies leading the way in the sustainable management of water resources. This shows there is a bright spot emerging in the increasing numbers of companies recognising the value of managing water in a more holistic sense. To find a complete list of scores including those companies achieving an A, please visit the report here.
“…the opportunity to prosper by following a path of improved water security is clear.”
How companies respond to an increasingly water insecure world will shape the future. Business has a unique opportunity to act. As companies implement long-term plans and strategies to support the Paris Agreement and the Sustainable Development Goals, opportunities exist to make business models fundamentally more sustainable and resilient.
CDP encourages all companies to improve their water stewardship. The potential impact of inaction is significant and the opportunity to prosper by following a path of improved water security is clear.
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- Innovating Water Stewardship Through Business Ecosystems - William Sarni, water stewardship expert, on the need for innovation in water strategies in order to better position for 21st Century water risks. Sarni points to “business ecosystems” as the driver for this innovation and value creation
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- Securing Water For Hong Kong’s Future - The Jockey Club Water Initiative on Sustainability & Engagement (JC-WISE) aims to secure long-term water sustainability for Hong Kong. CWR sat down with Dr Frederick Lee of the University of Hong Kong
- Corporate Disclosure: Can We See Clearly Now? - Global climate targets are connected to day-to-day operations of companies and with COP 22 underway China Water Risk’s Dawn McGregor reflects on how clearly we are seeing corporate disclosure, the obstacles in our way & if there will be a sunny day
- Paris Agreement: Food & Water Still At Risk - Even if all pledges made at COP21 are carried out, global staple crops face increased failures and 1.5 billion more people are to face water stress by 2050. Massachusetts Institute of Technology’s Mark Dwortzan shares more findings & solutions from their report
- Managing the World’s Liquid Asset – Water - Savvy investors now recognise water as a business risk yet there is still no agreed global standard & framework for sustainability reporting. Biswas, Tortajada & Chandler on why corporates & governments must do more to change the culture & mindset over the use of water
- Corporate Water Reporting in China - CDP’s report shows potentially inadequate water risk assessment by Chinese companies & those with HQ’s in China. CDP’s Gillespy on their latest report and why it’s time to report on water risks
- Is Water The New Carbon? - China Water Risk talked to Marcus Norton, Head of the CDP Water Disclosure to find out whether water disclosure follows The Carbon Disclosure Project.