Analysis & Reviews

Water Stewardship- More Action to Match Risk

Water Stewardship: Actions Must Match Risk

Water’s crucial role in business is definitely not novel information anymore. Actually the penetration of this understanding into corporates and the media is increasing but still not enough action is being taken to match the risk.

Risk acknowledged but action still lacking

Financial Times published an in-depth series, “A World Without Water”, in July 2014. Its first article, also entitled “A World Without Water” reviewed corporate water strategies and the need for water stewardship. Many in the water space considered this old news. The Food & Beverage sector has been leading water stewardship since 2011; see our interview of Greg Koch, Director of Global Water Stewardship for The Coca-Cola Company. But the fact that the subject has made it into leading financial news resources is a positive development.

Although Coca-Cola has spent nearly US$2bn over the last decade on water, 58% of the Global 500 respondents have still not made public commitments to water

The article also looked at the spending on water by leading MNCs and there have been significant expenditures. Since 2003 Coca-Cola and its bottlers have spent nearly USD2 billion to reduce their water use and improve water quality wherever they operate and Nestlé has set aside USD43 million for water-saving and wastewater treatment facilities at its plants in 2013. These are the leaders, how are others fairing?

CDP in November 2014 completed the fifth edition of their Global Water Report. Disclosures from 174 companies from Global 500 Companies were analysed and here are some positive findings from the respondents:

CDP Water Report 2014 Cover

  • 68% reported exposure to water related risk that could generate change in their business, operations or revenue; and
  • 22% said water could limit the growth of their business. A third of them then added in the next 12 months. In other words the water risk is imminent.

However, the report also shows the long road ahead in matching corporate actions to the risk:

  • 58% have not publically demonstrated a commitment to water;
  • 60% do not require key suppliers to disclose water risk; and
  • Water intensive industries like Energy & Industrials have low response rates of 42% (22/53) and 50% (19/38) respectively – compared to Food & Beverage at 66% (20/31)

Asia more exposed and yet little or no action

The report notes pressures from limited water and other water issues are more likely to be felt in high-growth emerging markets such as China, India, Brazil & Mexico, which supports our call for Asia to lead in corporate water stewardship.

Pressures from limited water and other water issues are more likely to be felt in high-growth emerging markets such as China, India, Brazil & Mexico

CDP Global Water Report 2014

That said, Asia’s presence in the report is limited. Though the report only analyses respondents from the Global 500 Companies, CDP sent out disclosure requests to over 2,200 companies. In this more “open group”, Asia had a larger presence but there were only three China-based companies in the sample.

This seems rather low given that 95 companies on Fortune Global 500 2014 are China-based, only second to the US with 128 companies. Moreover, China had three companies in the Global Top 10: #3 Sinopec, #4 China National Petroleum and #7 State Grid.

Obviously, this number needs to increase to get a better understanding of China’s corporate water status, especially since China is facing an urgent water crisis and policy actions to mitigate such impacts us all.

“We are encouraged to see a steady growth in sustainable investment assets across the Asia market, however this figure is small in relative terms with most markets remaining in the early stages of development.”

Jessica Robinson, ASrIA CEO

Asia’s low numbers could be in part due to limited investor interest in water and other environmental aspects in the region.

The Association for Sustainable Responsible Investment in Asia (ASrIA) released the 2014 Asia Sustainable Investment Review in December 2014. The report finds that sustainable investments assets in Asia (ex-Japan) now stand at USD44.9 billion, representing a year-on-year increase of 22% since 2011. But as ASrIA CEO, Jessica Robinson says, “We are encouraged to see a steady growth in sustainable investment assets across the Asia market, however this figure is small in relative terms with most markets remaining in the early stages of development.”

More needs to be done, but it’s important that what is matches the risk.

“Collective action” not put into practice

The need to consider and work with all stakeholders or “collective action” in corporate water strategies was called for in 2012 when it was the central tenet of CDP’s water report. Moreover, WWF defines Water Stewardship for Business as “A progression of increased improvement of water use and a reduction in the water related impacts of internal and value chain operations. More importantly, it is a commitment to the sustainable management of shares water resources in the public interest through collective action with other businesses, governments, NGOs and communities” – see more on WWF’s views on water stewardship here.

Only 38% of respondents in the 2014 CDP report assessed water risk in both direct operations & supply chains

Yet, two years on and few corporates are adopting collective water strategies. Only 38% of respondents in the 2014 CDP report assessed water risk in both direct operations and supply chains.

Moreover, only 40% of them included local communicates and other water users in the assessment and less than one third conducted the assessment at the river basin level. The 2013 report also showed this gap in collective action.

“… the actions of others within the watersheds in which a company operates can have direct impact on the business’s access to water.”

Will Sarni, Director Water Enterprise Strategy, Deloitte Consulting

The need for collective action is also echoed by Deloitte’s Will Sarni, Director & Practice Leader of Enterprise Water Strategy, in his article for China Water Risk this month on how corporates need to align their water strategy & growth strategy as water risks may mean that you can’t always buy water.

Sarni makes the clear point of how corporates are exposed through the interconnectedness of water thus collective action is important, “… the actions of others within the watersheds in which a company operates can have direct impact on the business’s access to water”.

 

Guidance on corporate water stewardship strategies from the experts

Stuart Orr (Head of Water Stewardship at WWF) and Guy Pegram (Managing Director at Pegasys) wrote the report “Business Strategy for Water Challenges: From Risk to Opportunity” in 2014. Below are the steps they recommend to corporates on developing a water stewardship strategy (for more details see the full report):

  1. Commit & Mobilise:  create awareness & motivation in company’s leadership
  2. Assess & Understand:  the risks & opportunities to build the right platform
  3. Prioritise & Decide: focus on high risks issues
  4. Implement & Communicate: be done internally & externally
  5. Monitor & Evaluate: bring water into corporate risk management & governance wherever possible
  6. Revise & Refine: conditions & context change rapidly in the water world, so you need to as well

It’s no surprise that Orr & Pegram recommend collective action, which they list as a stage of the strategic planning cycle of developing a corporate water stewardship strategy (see below). They encourage corporates to shift from corporate sustainability to collective water management thinking. The report says this means “recognizing that the pressures, realities, risks and opportunities business faces from water are mainly external.”

The Strategic Planning Cycle Flow Diagram - Orr & Pegram Report

Risk is interconnected: Corporates exposed & responsible

A general problem is that risk depends on people’s perception and what many people don’t perceive is that we are all at risk when it comes to water. Many also don’t realise the risk is interconnected (local, river basin, national, regional & global). It is important for corporates to realise this to ensure their future operations.

A general problem is that risk depends on people’s perception and what many people don’t perceive is that we are all at risk

As Orr & Pegram say in their report “A key first message for companies is to understand that water risks are experienced first and predominantly by people and ecosystems at the local or river basin scale. Any successful risk management approach must be based on finding solutions that work not only for their business, but for local water users too…. Rather than being opportunistic, it makes good business sense.”

It seems the International Council for Mining & Metals (ICMM) (representing 22 mining companies) agrees. In April 2014, ICMM launched its Water Stewardship Framework, which identifies four strategic imperatives. Two of these are: to engage pro-actively and inclusively and to adopt a catchment-based approach – both in line with a collective management strategy.

Actions like ICMM’s need to become common practice, particularly in Asia where we are more exposed and are taking little or no action. Asia’s urgent water crisis, increasing populations & demands and manufacturing industry focus means we cannot afford not to act to mitigate our water risks.

For long-term mitigation of these risks corporates need to implement collective action. To achieve this, corporates need to first quantify their risks by measuring their internal water profile, i.e. water use, efficiency etc… then they need to factor in reputational as well as regulatory risk.

Corporates need to act now or we will never catch-up with the risk!

The landscape is changing with the government pushing forward environmental-driven policies, making it more urgent to address water risk issues. On top of this urgency, climate change is driving increased water scarcity (link to climate risk article) means added pressures. Corporates need to act now or we will never catch-up with the risk!


Further Reading

  • Water: Can’t Always Buy What You Need -With competition for water intensifying, paying more for water may not get you what you need. Deloitte Consulting’s Will Sarni on strategies that can help corporates secure water for growth
  • Using Climate Forecasts in Supply Chains - To prevent & mitigate losses caused by climate events, the Columbia Water Center is developing advanced climate forecast products. Paulina Concha expands on this and the Center’s pilot with PepsiCo for its Frito Lay business
  • Climate Risks: Are We Ready? - Climate change is high on the global agenda, especially with COP 21 at the end of this year and yet we still face major stumbling blocks. See CWR’s key takeaways from various 2014 climate conferences from climate tools, regional resiliency plans, legacy issues to limited climate funding
  • China: Gaps in Rainy Day Funding - Given increasing economic losses & negative impacts on food production due to extreme weather, China Water Risk’s Hu highlights gaps in flood control investment and expands on how the Chinese government expects to finance rainy days ahead
  • 2014 Investments in Chinese Waters - With the government encouraging public & private sector water spend, check out investments in 2014 from agriculture, wastewater, water infrastructure, drinking water to Israeli cleantech
  • 2014 World Water Week: Takeaways - Check our key takeaways on ‘Water & Energy’ from World Water Week 2014. What are the challenges ahead for Asia & the rest of the world? Dawn McGregor expands

Corporate Water Stewardship

  • Corporate Conscience: Beyond Charity - Why are so few companies effectively mitigating water risk? Is it time for the conscientious corporate to transition water from purely charity and compliance to a core business activity?
  • Sink or Swim - As water risks rises in prominence we review whether more investors and corporates are taking action to mitigate risk and seek out opportunities
  • Water Stewardship: A Stake in the Ground - There is no universally agreed definition of water stewardship, leaving companies unsure of what it is and what to do. Stuart Orr walks us through WWF’s latest report, A Stake in the Ground, an introductory guide for companies on managing multi-faceted water risks
  • Business & Society: Building Trust - Given pressing societal issues, companies are now expected to lead the change across their business value chain. Edelman’s Ashley Hegland on why businesses need to reprioritize value to include such societal benefits to build & maintain trust or face reputational brand damage
Dawn McGregor

About Dawn McGregor

Dawn leads China Water Risk’s projects in the textile space, as well as conducts research and analyses on broader water risk and its disclosure. She is also responsible CWR’s communications and extensive network. She showcased these skills at World Water Week, where she has twice been lead rapporteur presenting key findings in the closing plenary, as well as contributing to conference’s conclusion papers. She has also delivered keynotes at various industry conferences, corporate events and investor forums in China and around the world. Dawn previously worked in a global investment bank analysing and mitigating non-financial risk in Asia Pacific. This included crisis management, business resiliency and geo-political risk assessment. She now continues her work in risk assessment with a new focus of China and water. Dawn has a background in science with a degree in Biology and Business, which she chose with the view of bridging the scientific world with the corporate & public sector to create synergistic opportunities. Dawn was born and bred in Hong Kong and has lived in France, England as well as Singapore & Beijing.

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