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CDP’s Cate Lamb laments that while many companies have made a virtue of fighting climate change, water security is being neglected because it has few C-suite champions
At the recent Financial Times Water Summit, Heineken’s CEO Jean-François van Boxmeer noted that “water is yet to have its Al Gore moment”. Van Boxmeer’s intervention was welcome, highlighting not only the absence of public champions on water issues, but also, specifically, the absence of public chief executive engagement on water security. I found myself questioning which industry champions could emerge to fill the void.
Having been involved with the issue for over a decade, I can count on one hand the number of chief executive officers (CEOs) that have spoken authentically and competently on the topic and what it means for their business. Yet in the climate arena, in the last month alone, we have seen C-suite engagement from the likes of Interface, EDF, IKEA, Unilever, Starbucks, Salesforce … you get the picture.
'I can count on one hand the number of CEOs that have spoken authentically on water'
There is anecdotal and empirical evidence that the CEO is a key decision-maker in environmental, social and corporate governance-related decisions. Environmental and sustainability professionals can make incremental improvements, but the actions that truly transform a company’s water performance are tied to strategic decisions taken by the CEO and the board. Decisions, for example, associated with product development, market expansion, or resource allocation, all have the potential to significantly reduce or even eliminate a company’s negative environmental impacts.
With the UN’s SDG6 Synthesis Report and the Intergovernmental Panel on Climate Change’s (IPCC) 1.5-degree report both warning that the world is not on track to achieve its water and climate goals, it is clear that incremental change is insufficient to deal with our challenges. If there has ever been a time for truly transformational decision-making and leadership, it is now.
CDP launched the concept of corporate water disclosure in 2009, working with shareholders to motivate companies to measure, manage and disclose annually, as a vital step to better water governance. It was the first systemic linkage between water and financial information and that year, 175 companies responded. This number has grown to 2,111 companies today: a record for CDP.
During this time, CDP has sparked a strategic dialogue on water security globally, engaging investors, companies, governments, cities, states and regions on the importance of greater transparency in the pursuit of a water secure future. Research suggests that our work in securing C-suite commitment is a critical factor for effective engagement in collective water action, both at enterprise and local levels.
Companies need to demonstrate deeper commitment and incentivise boards to ensure water is on their agenda
To secure a place on CDP’s A-list, companies must demonstrate the highest levels of commitment to water. A large majority of companies (85%) that responded to our investor programme in 2018 reported that their boards have oversight of water issues but, arguably, this is an easy win, as corporate boards should have oversight of most things. To make the A-list, companies need to demonstrate a deeper commitment, incentivising their boards to take action and ensuring water is on their agenda.
Refinements made to our questionnaires this year allow us and other data users to dig a little deeper into this statistic for companies in high water impact sectors: food, beverage and tobacco; metals and mining; oil and gas; electric utilities and chemicals. Almost three quarters (68%) of companies in these sectors report exposure to water risks that could have a substantive financial or strategic impact on business, revenue or operations, with over half (52%) integrating water issues into business planning processes.
However, when it comes to incentivising performance, only a small group of companies have any such structures in place for C-suite executives. On average, just 27% incentivise actual improvements in water withdrawals or consumption and just 15% have incentives tied to improvements in the quality of wastewater discharges.
For example, German Chemicals company Symrise AG ties 10% of its CEO, chief finance (CFO) and chief strategy (CSO) officers’ bonuses to achieving corporate sustainability targets. These include strategic water-related company targets, such as the annual reduction of wastewater loadings by 4%, increasing the number and percentage of strategic suppliers participating in CDP’s supply chain program, and the company’s CDP scores for water, climate and forests.
CDP’s experience in the pursuit of a low-carbon future suggests that incentives for CEOs play an important role in driving better environmental outcomes. For example, analysis of corporates that reported to CDP last year indicates that companies that have board-level oversight of climate change are nine times more likely to set emissions-reduction targets. Further, when a CEO’s remuneration is based on reductions in scope 1 and 2 CO2 emissions, or with CDP’s climate change score as is the case with Mars and Kering, ambition is higher and rates of reduction are much faster.
The recently released Euronext Index selects companies based on their CDP water scores
The world is not managing water well. This is a result of failures in the leadership of governance and markets. Markets are edging forward, but corporate leaders need to seize the reins and pick up the pace. Encouragingly, those that already have are being viewed favourably by the finance community. For example, the recently released Euronext Index, developed in partnership with Goldman Sachs, selects companies based on their CDP water score, as well as climate and forests scores – prioritising those that feature on CDP’s A-list. The development of this index sends a strong signal to the market by openly directing capital towards companies that have made a firm commitment to water security.
With more companies than ever disclosing and taking action via CDP we are nearing a tipping point that will mainstream corporate action on water security across the world. Change starts from the top. For many companies, water can often be forgotten in the urgency of day-to-day operations. Corporate leaders with foresight are increasingly placing water security as a core business issue and are attempting to reduce their water-related impacts and risks. Excitingly, they are beginning to be rewarded for this. Why wait for Al Gore? It’s time for CEOs to lean in and provide the kind of inspirational, transformational leadership required to deliver a water secure future for all.
Cate Lamb is global director of water security at CDP.water risk CDP climate change Heineken CSR