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On World Water Day Cate Lamb of CDP argues that while some companies, like L'Oréal, are showing leadership, overall action in safeguarding this dwindling resource is falling far short. There has been a 50% rise in companies reporting higher water withdrawals since 2015, according to a CDP report published today
As we mark World Water Day, the urgency of the water challenge we face has been highlighted with the warning from the Environment Agency that England will not have enough water to meet demand within 25 years, unless major changes are made.
The UK is a country that most would deem to be water-abundant. Needless to say, the situation is even more severe in arid areas, such as in Cape Town, which had a water scarcity crisis last year.
Around the world the twin pressures of economic and population growth are driving up demand, just as climate change is squeezing the availability and quality of water due to droughts, pollution and changes to rainfall patterns.
The world is not on track to meet SDG 6 – securing sustainable water and sanitation for all by 2030
The Environment Agency has called on citizens to take responsibility and preserve water supplies by avoiding waste. But we can’t expect consumers to solve this on their own.
With industry, power generation and agri-businesses accounting for 50% of water consumption in England and Wales, companies have a massive role to play in ensuring our sustainable supply of water. CDP’s global water report Treading Water, released today, shines a light on what the world’s largest companies are saying about water risk.
Our analysis shows that while there has been some progress, and a few companies are showing leadership, overall action falls far short of what’s needed. And the world is certainly not on track to meet the global water goal (SDG 6) of securing sustainable water and sanitation for all by 2030.
It is not just the social and environmental impact of unsustainable water use that should drive companies to act. As the report shows, water-related financial losses are rising. In 2018, companies reported such losses to the tune of $38 billion. Some $29bn relates to just two companies – Vale and Tokyo Electric Power Company – but even when these two cases are removed, losses were still higher than in 2017.
Looking just at the 296 companies that have consistently disclosed through CDP since 2015 we see that reported water risks are rising year on year, from 70% in 2015 to 75% in 2018.
The majority (76%) of risks reported are physical, relating to water scarcity and declining water quality, which can disrupt production, increase operating costs and disrupt supply chains. These risks aren’t just a distant threat: companies expect almost half of them to materialise over the next three years.
Companies will have to evaluate how their business models can be transformed in support of a water-secure future
Yet it looks like these alarm bells are falling on deaf ears, as there has been an almost 50% rise in the number of companies reporting higher water withdrawals since 2015.
Extraction of water from ground or surface supplies is a problem because it puts further pressure on water supplies, which are under greater demand than ever. Unlike fossil fuels, which can be replaced by low-carbon sources of energy, there is no alternative to water.
This increase in withdrawals is most pronounced in the food, beverage and agriculture, manufacturing and mineral extraction sectors, and in Asia and Latin America.
Mainly this is down to an increase in production. For example, Japanese electronics manufacturer Mitsubishi Electric Corporation reported record sales in fiscal year 2018, but this came at the expense of higher water withdrawals. In response, the company has introduced measures to increase water reuse rates and expects to maintain current water withdrawal levels in future.
Climate-related impacts can also spark the need for higher withdrawals. For example, mining company AngloGold Ashanti cited reduced annual rainfall in some operational areas as the reason for requiring additional water withdrawals to meet production demand.
If companies want to succeed, they will have to evaluate how their business models, practices and products can be transformed in support of a water-secure future, and ultimately decouple water withdrawals from growth. One company that is leading in this area is French beauty giant L’Oréal, one of just 31 companies on CDP’s 2018 water security A list.
For the first time in nine years, retail is even less transparent on water issues than fossil fuel companies
Since 2005, L’Oréal has reduced the water consumption of its plants and distribution centres by 33% in absolute terms, while production has increased by 31%. This corresponds to a 48% reduction in water consumption per finished product by the end of 2017.
Having incentives for C-suite executives is an effective way to improve performance against water targets. However, there’s great potential for improvement, with only 31% of companies in high-impact sectors (food, beverages and tobacco, metals and mining, oil and gas, electric utilities and chemicals) reporting that they have such incentives in place.
It starts with transparency. By reporting their impacts, companies are able to develop a better understanding of their risks and losses and develop an action plan and governance structure to improve.
That is why it is disappointing to see that the retail sector is lagging behind on transparency. For the first time in nine years, retail is even less transparent on water issues than fossil fuel companies, with just 28 companies disclosing out of the 117 requested. Even household names that are often well regarded on corporate sustainability, like Tesco and Marks & Spencer, did not disclose water data in 2018.
This sector wields huge power in high-impact agricultural and manufacturing value chains and has revenues anticipated to reach $28 trillion this year. This lack of disclosure presents a real risk for these companies and their shareholders, so investors should be calling on these companies to demand greater transparency and action.
The global water challenge is not going away. Companies can no longer take it for granted that they will have a stable supply of good quality water. To ensure sustainable supply of this vital resource we must ensure it is discussed and prioritised in the boardroom, not just the boiler room, and that companies up their accountability on the management of this precious resource.
Cate Lamb is director of water security at CDP.#worldwaterday water scarcity Cape Town drought SDG6