Investors turn their gaze to water risks in Europe

| 2 June 2016 | Category: News, Practices
floodedhouseAs competition for Europe’s precious supply of freshwater intensifies and the effects of climate change are increasingly felt, European companies still have some way to go to address water concerns according to global non-profit organization CDP. With the generous support of the Stavros Niarchos Foundation, the world leader in environmental reporting, CDP, today releases its first European water report “State of play in corporate water stewardship” providing a snapshot of the current state of play of corporate water action in Europe.

In a year when the World Economic Forum has ranked global water crises – including drought, increased risk of flooding and deteriorating water quality – as the greatest threat facing the planet over the next decade in terms of impact, interest among institutional investors in water-related risk, opportunity and disclosure is growing.

This year, through CDP, 643 institutional investors asked 299 of Europe’s largest publicly listed companies across industry sectors with high water vulnerability or impacts to disclose how they are adapting and responding to worsening water security – more than four times the number of investors backing the CDP request compared with the global program’s first year in 2010.

While there are signs of action from this group, there is certainly room for improvement. 62% (186) of companies requested to report water data by investors, failed to do so. Only one European company, Metsä Board, made it to the CDP Water A list* which account for a total of eight companies worldwide (three in Japan, two in USA and two in South Africa). Action is needed if these non-responding companies are to increase investor confidence that they are shoring up their business in the face of worsening water security.

According to Schroders, a global asset management company: ‘Investor attitudes have changed over the last five years, as there is increasing recognition that there are environmental limits to economic growth. CDP data helps us analyse companies on the sector level comparing performance against their peers, understanding how companies are addressing risks, and also looking at opportunities.’

Energy and Industrial companies in particular are not meeting investor demands for transparency and action. Just 13% and 16% respectively, of the European’s largest publicly listed companies in these sectors responded to CDP’s annual request from investors to account for their water management strategies in 2015, less than the average disclosure rate of 38% this year.

This lack of transparency is concerning given over two-thirds of Energy companies (65%) and more than half of industrial companies globally (56%) say their business is vulnerable to substantive water risks. Furthermore, the bottom line has already been hit for a quarter (25% and 22%) of these companies due to water-related challenges in the past year – among the highest of the eight sectors reporting via CDP in 2015.

Despite concerns that European water policy goals may be unrealised due to poor water quality, eutrophication and the need for reforms in the way in which water is allocated for industrial, agriculture and energy production, more than half (56%) of companies are failing to conduct a comprehensive risk assessment – a basic first step for any company seeking to ensure business resilience against water issues.

Almost two thirds of respondents (61%) have identified water as a substantive business risk. A total 444 risks were reported by European companies, the majority of which are anticipated to impact either now or in the next three years.

Cate Lamb, head of water at CDP, says: “Just as oil was to the 20th century, water is fast becoming the defining resource of the 21st century. Unfortunately however, unlike oil, there is no replacement for water. Companies using CDP’s water program are beginning to understand that taking a strategic view of how they manage water can enhance competitive advantage, investor appeal and business resilience. CDP’s Water A List in particular understand that taking a more prudent approach to managing water will ultimately be of benefit to their business and wider stakeholders. It’s now time to close the gap.

The CDP Europe water report 2016 “State of play in corporate water stewardship” is available on the CDP website.

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Category: News, Practices