This article forms part of CAER’s ‘Responsible Investment Agenda 2019– A Work Plan for Australian and New Zealand Investors’ Report
The term ‘water risk’ ― defined as ‘the effect of
water-related uncertainty on an organisation’s objectives’ ―
has become increasingly ubiquitous in the ESG arena in 2018. Never before has
the corporate world had such cause to concern itself with water management.
Several key factors ― namely, climate change, population growth and
unsustainable production and consumption patterns ― threaten this finite
resource. It is imperative that we ensure the sustainable and equitable use of
water, a task in which investors have a role to play.
The Shift from Regulatory Risk
While in past decades regulatory bodies have posed the most serious threat to a company’s water use, today, companies face equal pressure from multiple stakeholders. The physical risks posed by water stress have the potential to be damaging to not only the planet, but to human rights and business operations across sectors. Aside from the obvious environmental damage posed by unsustainable production and consumption of water, an array of social, financial, and reputational risks exist concomitant to water risk.
Every business activity requires fresh water to some degree; however, some business sectors, such as the water-intensive operations of mining companies (which often take place in water-scarce regions) are more exposed to water risk than others. Consider the contentious planned operations of Adani’s Carmichael mine in Queensland, which plans to draw 12.5 billion litres of water from the Suttor River each year – roughly equivalent to the water use of all local farmers combined.
Having been granted unlimited groundwater access by the Queensland government for the next sixty years, regulatory risk is certainly not Adani’s most pressing water-related issue. The Indian mining giant has faced nationwide uproar, particularly from farmers and indigenous rights groups, who continue to highlight the human rights risks posed by such unsustainable water consumption. Alongside increased public awareness of water management issues, Adani’s operations have attracted a series of legal and environmental disputes, which have already led to a serious scale-down from the original plan for the mine. Moreover, the company’s reputation in Australia lies in tatters.
Water-intensive industries cannot continue their current
operations indefinitely; companies must be prepared to adapt. Regulatory bodies
no longer pose the most serious threat to companies’ unsustainable water use;
today, environmental, social, reputational, and financial realities serve to
bring the overambitious down to earth.
Hidden Water Costs
While in some industries, such as mining, the source of water risk is evident, in other industries one must look more closely at the supply chain in order to detect the real extent of water risk.
Supply chain operations contribute the most to a company’s water footprint. These operations often take place in water-stressed regions, where a company has less direct control and water stewardship
is more difficult to implement. The supply chain, therefore, constitutes the most important and often the most overlooked element of water management in many industries. For companies with agricultural suppliers, such as those in the food, beverage, or textile industries, this is certainly the case.
PepsiCo, for example, is a food and beverage company that relies heavily on water consumption throughout its largely agricultural supply chain, withdrawing and consuming 92,000 megalitres per year. Further, much of the company’s production occurs in India, a water-scarce region. PepsiCo is now a global vanguard company in terms of acting and reporting on water stewardship; having invested significantly in water access solutions, it is on track to achieve its 2025 goal of improving water-use efficiency in its global supply chain by 15% (from 2015). Comprehensive disclosure of water consumption is an essential step towards water stewardship. To this end, investors should demand transparency from companies as ‘hidden’ water costs must first be uncovered before they can be addressed.
Considerations & Tools for Investors
With so many factors contributing to water risk, and so many hidden water costs, how should the conscientious investor proceed?
The CDP Global Water Report (2017) provides six key areas to track regarding a company’s water management. These include: transparency surrounding water consumption; board-level governance and oversight of water consumption; measuring and monitoring water withdrawals, discharges, quality, and consumption; water risk assessment (across the supply chain); setting and achieving targets and goals to reduce water impact; and engaging with suppliers across the supply chain regarding water management. Engaging with a company on these criteria will allow an investor to ensure the company is making genuine and critical efforts towards water stewardship.
A series of tools exist which allow investors to incorporate
water stewardship into the decision-making process. These are summarised in the
Table 1 Water Stewardship Tools for Investors
For more information about these tools click here.
The Impact on Investment
The need to confront water risk is becoming increasingly urgent. By 2030, the UN predicts a 40% shortfall of the current global water supply. Moving forward, investors should strive to support companies (across all sectors) that engage actively with water stewardship. Supply chains must be examined ― not only in terms of the nature of activity undertaken, but the location in which it is conducted ― in order to properly assess a company’s water footprint.
Investors should consider the following questions when engaging with companies on water use and management:
- How is the company using water? Where does it fall in the value chain?
- Where is the company using water? How abundant is water there?
- What is the company doing to manage and mitigate water risks?
- Has the company prepared for the possibility of insufficient water supply for its operations?
The answers to these questions will be of great consequence
in determining a company’s environmental and financial sustainability into the
Or continue to explore each issue
Interested in discussing any of these issues further? Feel free to get in touch.
 CEO Water Mandate, Water Stewardship Glossary (2018): <https://ceowatermandate.org/why-stewardship/glossary/> [Accessed, 23/01/2019].
 Michael Slezak, ‘Adani plans to take 12.5b litres of water as farmer denied access in ‘double standard,’ ABC News (25 September 2018): <https://www.abc.net.au/news/2018-09-25/adani-plans-to-take-12.5b-litres-of-water-as-farmer-denied/10298354> [Accessed, 23/01/2019].
 Helen Davidson, ‘Irreversible consequences: Adani coalmine granted unlimited water access for 60 years,’ The Guardian (5 April 2017): <https://www.theguardian.com/environment/2017/apr/05/irreversible-consequences-adani-coalmine-granted-unlimited-water-access-for-60-years> [Accessed, 23/01/2019].
 Roy Morgan, Australians Don’t Want the Adani Mine (13 October 2017): <http://www.roymorgan.com/findings/7364-roy-morgan-snap-sms-survey-adani-coal-mine-october-2017-201710130323> [Accessed, 31/01/2019].
 Michael Slezak, ‘Adani says a scaled-down version of its Carmichael coal mine will go ahead; environmentalists express scepticism,’ ABC News (29 November 2018): <https://www.abc.net.au/news/2018-11-29/adani-carmichael-coal-mine-go-ahead-plans-to-self-fund/10567848> [Accessed, 31/01/2019].
 Cora Kammeyer, ‘Water Stewardship in Supply Chains: The Missing Piece?’ CEO Water Mandate (15 February, 2018): <https://ceowatermandate.org/posts/water-stewardship-supply-chains-missing-piece/> [Accessed, 31/01/2019].
 CDP, PepsiCo Inc. Water Disclosure (2018): <https://www.pepsico.com/docs/album/a-z-topics-policies/2018-cdp-water-response.pdf?sfvrsn=c5c36f59_4> [Accessed, 31/01/2019].
 CDP, CDP Water Report (2017): <https://www.cdp.net/en/research/global-reports/global-water-report-2017#f4a8bac81685310e23ff7b9d466324b4> [Accessed, 1/02/2019].
 United Nations, World Could Face Water Availability Shortfall by 2030 if Current Trends Continue, Secretary-General Warns at Meeting of High-Level Panel (21 September 2016): <https://www.un.org/press/en/2016/sgsm18114.doc.htm> [Accessed, 1/02/2019].