Investors urge companies to come clean over water risks

Most companies operating in water-intensive industries are failing to provide investors with adequate information on the water-related risks they face and in many cases have little idea how their supply chains could be affected by water shortages.

That is the stark conclusion of a major report from sustainable investor group Ceres, financial services firm UBS and news agency Bloomberg, which yesterday warned many firms operating in water-intensive industries have "weak management and disclosure of water-related risks and opportunities".

The study, titled Murky Waters: Corporate Reporting on Water Risk, assessed the water-related disclosures of 100 of the largest publicly traded companies operating in the food, drink, electricity, mining, oil and gas, semiconductor, chemicals and construction industries. Researchers scored the companies' water policies out of 100, but found that even the best-performing firms, beverage giant Diageo, Swiss mining company Xstrata and US electricity provider Pinnacle West, scored no more than 43 points.

Overall it revealed that many companies did not include any information on water risks and performance in their financial filings and provided no data on how water shortages could affect facilities operating in water-stressed regions.

Remarkably, not one of the companies provided detailed water data on their supply chains, despite the fact that many of them operate global supply chains with sizeable water footprints in parts of the world that are at high risk from the increased incidence of droughts.

"Most companies provide basic disclosure on overall water use and water scarcity concerns, but their focus and attention so far is not nearly at the level needed given the enormity of this growing global challenge," said Mindy S Lubber, president of Ceres. "Our global economy runs on water and in many parts of the world this finite resource is under threat. Companies must do more to disclose their potential exposure from this issue and their strategies for responding."

The report cited recent incidents where businesses have been affected by regional water shortages. For example, drought in California last year reportedly cost the state's agricultural industry $1bn (£640m) and led to the loss of an estimated 21,000 jobs. Similarly, the 2007-08 drought in Georgia increased costs for energy firm Southern Co by $33m as it was forced to replace falling hydroelectric power output with more costly fossil fuel-based power.

Julie Hudson, global head of SRI and sustainability research at UBS Investment Bank, said the industries included in the study faced genuine risks to their bottom line as a result of water-related risks. "We chose sectors where water security concerns are likely to have a material impact on business, whether through regulatory, legal or reputational constraints that in some cases can go so far as to threaten a firm's very licence to operate," she observed. " It is clear that any threat to water security could have a significant impact on the bottom line of such companies."

The report comes just weeks after the US Securities and Exchange Commission issued new interpretive guidance, providing firms with information on how they should assess whether climate change-related issues represent a "material risk" to their business and as such should be included in annual reports.

The guidance recommended that water-related risks should be considered and that firms should include risk assessments and performance data in their financial filings.

The Ceres report also recommended that investors push the companies they own to provide water-related data and encourage asset managers to assess wa ter-related risks and opportunities.