Water-related risks not being given the attention they deserve
The Carbon Disclosure Project (CDP) Water Disclosure Global Report, which was launched recently, finds that 57 percent of the 190 publicly listed organizations that participated in the survey report board-level oversight of water policies, strategies, or plans. By comparison, a report released by CDP in September 2011 showed that 94 percent of Global 500 companies report board-level oversight of climate change, suggesting that corporate understanding of water as a business concern trails that of climate change. This is surprising, given that the majority of reported water-related risks and opportunities are recognized as near term.
Deloitte Touche Tohmatsu Limited (DTTL) is one of the principal sponsors of the CDP project, and consultants from the Deloitte member firm network supported CDP in analyzing the data and developing the contents of the report.
The second annual CDP Water Disclosure Global Report is based on a questionnaire sent to 315 companies on the Global 500 index that are identified as operating in the most water-stressed locations or industry sectors. This year, 190 (60 percent) of these companies responded — a 10 percent increase from the previous year — showing improved transparency on water management. CDP Water Disclosure collects data annually on water use, strategies, and risks and opportunities from companies on behalf of 354 investors representing US$43 trillion in assets.
Over half (59 percent) of companies surveyed report exposure to water-related risks such as flooding, scarcity, and reputational damage. The majority of these risks are near term: 64 percent of risks in direct operations and 66 percent of risks in the supply chain are identified as occurring between now and 2016. Illustrating the urgency of water risk, more than one-third of responding companies (38 percent) have already experienced water-related business impacts, such as disruption to operations from severe weather events (e.g., flooding) and water shortages.
Paul Simpson, chief executive officer at CDP says: “Some of the largest multinational companies have experienced the detrimental effects that water can have on their bottom line. The findings ... illustrate the very near-term nature of water-related impacts. We need to see more companies understand that water is a critical issue, requiring greater board-level attention than it currently receives. Those corporations that navigate the challenges effectively will be able to profit from the significant opportunities that result from a robust water strategy.”
Further CDP Water Disclosure Global Report findings include:
• Over a third of companies (38 percent) are unaware of whether they are exposed to water risk in their supply chains. In the Consumer Discretionary sector, which is dominated by industries that are particularly exposed to supply chain risk (e.g., retailers, hotels, resorts, and automobile manufacturers) this figure rises to 41 percent.
• Energy companies report a high level of risk (72 percent), yet report the lowest levels of board oversight of water policies, strategies, or plans (36 percent).
• The biggest water risk facing businesses in their direct operations is water stress or scarcity (41 percent), followed by flooding (24 percent), reputational damage (23 percent), and higher compliance costs (21 percent). One company reported that it had already experienced a water-related impact at a cost of US$200 million.
•Date: 17th November 2011 • Region: World •Type: Article • Topic: Enterprise risk management