How Companies Manage Water Risk

Water is necessary for life and it is necessary for business. The World Economic Forum Global Risks 2015 list ranked water crises, including drought, as the number one risk facing humanity. 

Thirteen of the world’s 37 largest aquifers are depleted so much that regional water availability is threatened. Almost two-thirds of China’s groundwater and a third of the country’s surface water was rated as unfit for humans last year. The entire state of California serves as another example. The state that has the world’s eighth largest economy is in its fourth year of severe drought. Sao Paulo, Brazil serves as still another example. The city’s water supply is running dry because of drought and under-investment. 

“Water is the lifeblood of the economy,” declared the CDP’s Global Water Report 2015. The report analyzed 405 companies responding to investors requests to provide information about their water risk management programs. A total of 617 institutional investors that manage $63 trillion in assets came together as part of CDP’s water program to ask 1,073 publicly listed companies to provide information on their water security plans. 

Nearly two-thirds of companies who responded, or 65 percent, reported exposure to water risk with financial impacts in 2015 totaling over $2.5 billion. The companies who responded identified, on average, exposure to eight water risks that could have a “substantive change” to their business, revenue or operations. However, companies reported a total of 2,413 individual water risks in direct operations and 788 in supply chains. Almost half of all risks reported (44 percent) are expected to occur within the next three years. Physical risks such as increased water scarcity or stress were the ones most commonly identified. 

Water stewardship does cost money, but it can also reduce costs or even increase revenue. Over 70 percent of companies reported that water provides operational, strategic or market opportunities. Yet, only 24 percent of companies require their main suppliers to report to them or include those suppliers in corporate water risk assessments. Nearly half of companies (48 percent) do not conduct comprehensive monitoring of both water withdrawals and discharges. Without monitoring, water risk assessment is impossible. Only 11 percent of companies have water policies that are considered by CDP to be comprehensive and robust. 

CDP's first ever A rating list for water security

Some companies are setting an example for others when it comes to water management. Eight companies made the first ever A rating list for their achievements in improving water security. The eight companies on the CDP Water A List in 2015 are:

  • Asahi Group Holdings, Ltd (Japan)
  • Colgate Palmolive, (US)  
  • Ford Motor Company, (US)
  • Harmony Gold Mining Co.Ltd, (South Africa)
  • Kumba Iron Ore, (South Africa)
  • Metsä Board, (Finland)
  • Rohm Co., Ltd, (Japan)
  • Toyota Motor Corporation, (Japan)

The second company on the Water A List, Colgate-Palmolive, serves as an example of how some companies are working to manage water risk by setting lofty goals. The company has an ambitious goal to reduce water used in its products by 40 percent by this year. The company has already reduced its water by 33 percent as of 2014. Its 2020 goal is even more ambitious. Colgate aims to reduce its manufacturing water intensity by half compared to 2002. The company has a “Top 10 Water Actions” program that identifies and implements water reduction opportunities at its manufacturing and technology center sites. 

Photo: James Marvin Phelps