Water has been predicted as “the next big thing” in environmental issues for a while now, and the prediction looks to be coming true.
Amid concerns that climate change and a growing global population are putting pressure on an already scarce resource, the Carbon Disclosure Project (CDP) announced this week that it is calling on companies to begin reporting on their water use as well as their carbon emissions.
As is the case with CDP’s work on greenhouse gas emissions, the call for reporting comes not from the organization itself but from the hundreds of investors it works with worldwide, which means water has become not just an environmental issue but also a business risk.
It’s a point that echoes the results of a report issued earlier this year by the investor network Ceres. Entitled “Water Scarcity and Climate Change,” the report highlights the business risks associated with water scarcity in general and pinpoints a handful of particularly vulnerable industries, namely the electric, agriculture, beverage and high tech industries.
"The impact of water scarcity and declining water quality on business will be far-reaching," the Ceres report warns. "We’re already seeing decreases in companies’ water allotments, more stringent regulations, higher costs for water, growing community opposition and increased public scrutiny of corporate water practices."
In China, for example, the report describes how droughts have led to restrictions on the locations of new water-intensive industries, such as textiles, metal smelting and chemicals. Pepsi and Coca-Cola have faced bottling plant shutdowns in India over water disputes. Water is also vital to the technology industry: Intel and Texas Instruments alone used more than 11 billion gallons of ultra-pure water for cleaning and rinsing in the production of silicon chips in 2007, Ceres notes.
Water and energy often compete, as well, adding another layer of water issues to consider. Hydropower can change water flows relied on by agriculture, while fossil fuel industries such as the Canadian tar sands siphon off millions of gallons of fresh water per day for production and leave it contaminated in toxic tailings ponds. A recent RiskMetrics Group report warned investors that new Canadian water quality regulations will soon leave some of those tar sands producers exposed to significant financial risks.
Investors Look for Assurances
According to Marcus Norton, who heads up the new CDP Water Disclosure program, companies and investors began coming to CDP in 2008 saying that while carbon was important for companies to manage, in some cases water was equally, if not more, important.
To address the concerns of its stakeholders, CDP launched a water disclosure pilot that ran through 2008 and 2009 and included responses from about 40 companies about their water use. That pilot formed the basis of the CDP Water Disclosure Program, which has asked 302 companies within CDP’s Global 500 (the top 500 companies in the world by market cap) to report on water. The initial companies chosen are all in either water-intensive industries or water-constrained areas, or both, according to Norton.
The resulting questionnaire, comprised of 91 requests for information, is based on the indicators included in the framework of the Global Reporting Initiative. But Norton explains that the CDP questionnaire takes it a step further:
“The way GRI works, companies have to report on a global level; we mirror that, but invite them to break down those global levels as they deem appropriate — by country, region or business unit. The intention is to move the debate forward at a pace that companies are comfortable with."
Reporting to CDP on either carbon and water is voluntary, and Norton says CDP has intentionally grown its programs at a pace at which companies are comfortable. “The last thing we want to do is move too far too fast and set the bar unreasonably high," he said.
Water Risks Are Easier to Visualize
Companies are motivated to report on and better manage their carbon emissions and water use by the desire to impress investors, Noron explains.
“We ask companies to look at risks and opportunities in a strategic way, and if they do that it puts them in strong position to mitigate those risks and take advantage of opportunities,” he said.
“These requests are coming from investors who are either shareholders of these companies or potential shareholders, so it’s worthwhile for companies to prove to our investors that they can function well in a carbon-constrained and water-constrained world.”
The reports may also help inform other stakeholders, including policy makers and, eventually, the public.
“My feeling is that we’re on a similar curve with water as we were with climate and carbon — interest [in water] has been relatively flat for years and my sense is that we’re starting to hit that lift-off point,” Norton says.
“The fact that we have such strong investor support for CDP Water Disclosure in our first year suggests the timing is right, and in a sense we’re helped by the fact that climate and environment are high up on political agendas and more present in the press because people see water as a critical resource. And unlike carbon or climate change, water is not at all complicated: It’s a shared resource, there’s a limited supply of it, that supply will likely be affected by climate change in some way, and meanwhile demand is skyrocketing so water will inevitably become more scarce and valuable.”
The fact that water is an input to various products and services, rather than a waste product, like carbon emissions, also makes it easier for companies to grasp and in a sense more urgent for them to deal with.
“With carbon, the constraint is on what you can emit and that won’t necessarily impact your ability to produce, whereas if water is an essential ingredient in what you do, access to it can directly affect your production,” Norton explains.
While reporting on something doesn’t necessarily change it, it is an important first step toward the ultimate goal: improved water management. After all, as Norton points out: “You can’t really manage something until you measure it, so we need to start there.”