Corporate Water Risk Report: 5th CDP Survey of Top Global Companies

The details are lacking, as risk disclosures often have a narrow focus and significant data gaps.

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Utilities and energy companies are the two business sectors that are most exposed to water risks, according to CDP’s 5th annual water risk report. Click image to enlarge.

By Brett Walton
Circle of Blue

More than two-thirds of the world’s largest companies with the greatest exposure to water risks say that pollution, insufficient water supplies, rising prices, community displeasure, or stringent regulations could reduce revenue or even change the way that they do business.

The finding comes from an annual water risk survey conducted by CDP, a London-based nonprofit that works with investors to encourage businesses to ponder and reveal environmental risks to their operations. Now in its fifth edition, the CDP report is the premier source of self-reported company data on corporate water risks.

In spite of a growing awareness among executives of the disruptive potential of inadequate or polluted water supplies, few companies are completing the detailed assessments necessary to understand water as a comprehensive business risk, according to the report. Though they are improving, evaluations are often shallow, as are the responses, noted Cate Lamb, head of CDP’s water program. Companies assess risks of water shortage, pollution, or government policies for individual facilities but usually not for the raw materials that they spin into retail products or for their suppliers.

“Many companies are managing water risk at an operational level, but they are not seeing it as a strategic component of growth,” Lamb told Circle of Blue. “There’s still quite a focus on direct operations, efficiency, and quick wins. That’s a fair step, but we hope they move quickly to understand that this is narrow.”

Only 38 percent of the companies that responded to the survey said that they assess water risks in their supply chains. Just 28 percent look at water use across the entire river basin in which a factory is located.

Concerted Effort Needed to Fill Data Gaps

Even companies that use the best available off-the-shelf risk assessments find them inadequate. PepsiCo’s experience with two of the leading water risk tools is instructive.

The beverage giant, which has responded to every CDP report, uses the World Business Council for Sustainable Development’s Global Water Tool and the World Resources Institute’s Aqueduct. The tools produce maps of water stress by river basin and are designed to be a first, broad look at where a company should direct its attention.

For PepsiCo, these tools are screening devices, according to Liese Dallbauman, director for water stewardship. The company follows the coarse analysis with a deeper, in-house evaluation for more than 300 of its facilities worldwide.

“We have to back up those analyses with information from local sources,” Dallbauman told Circle of Blue. “We’ve learned multiple times that maps can be misleading.”

The in-house assessment was born in 2012 from confusion in Belgium. Every water risk map showed the company’s facility on the North Sea as being in a state of water stress. But that was not the case, the local operators said. The community’s water supply was piped from Brussels, a transfer of water across river basins. The mapping tools do not account for such infrastructure projects, a point highlighted in a Nature Conservancy study published in June 2014. Thanks to human engineering, fewer sites are water-stressed than nature would have it.

“It was a false alarm,” Dallbauman said, referring to the Belgium case. “It was not as urgent as the mapping made it look.”

PepsiCo’s internal assessment also goes beyond the physical availability of water in a river, which is the bread and butter of the global tools. PepsiCo examines the cost of water and the reliability of the municipal utility – certainly a risk in areas where tap water is not available 24 hours a day.

One variable that Dallbauman said is universally missing is a groundwater database with information on trends in water levels, aquifer formations, and subterranean flows.

“We don’t think there is a global tool that can tell us enough about groundwater,” she said.

From Disclosure to Performance

Clearly a motivated company can make great strides in understanding its risks. Stu Dalheim of Calvert Investments reckons that most businesses have enough information. They just need the will to make use of it, he told Circle of Blue.

Calvert was one of 573 investors holding $US 60 trillion in assets that supported the CDP water report. Dalheim said Calvert appreciates the CDP report because it is a common framework that can spark a dialogue between investors and individual companies.

“What we’re looking for is a description of the ways a company thinks it is exposed and what it is doing to address them,” Dalheim said.

Up to this point, the CDP report has been all about disclosure. Next year, however, the report will evaluate Dalheim’s latter concern – how well companies are doing in their attempts to reduce risk. A trial assessment was completed for 160 companies this summer, according to the CDP’s Lamb, and every company that responds to the 2015 report will be evaluated.

Brett Walton

Brett writes about agriculture, energy, infrastructure, and the politics and economics of water in the United States. He also writes the Federal Water Tap, Circle of Blue’s weekly digest of U.S. government water news. He is the winner of two Society of Environmental Journalists reporting awards, one of the top honors in American environmental journalism: first place for explanatory reporting for a series on septic system pollution in the United States(2016) and third place for beat reporting in a small market (2014). He received the Sierra Club’s Distinguished Service Award in 2018. Brett lives in Seattle, where he hikes the mountains and bakes pies. Contact Brett Walton