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Ceres has released the ﬁrst comprehensive assessment and ranking of water disclosure practices of 100 publicly-traded companies in eight key sectors exposed to water-related risks: beverage, chemicals, electric power, food, homebuilding, mining, oil and gas, and semiconductors. The report highlights best practices, key gaps and trends in water reporting and lays out a set of recommendations for companies and investors.
Despite growing water-scarcity risks in many parts of the world, the vast majority of leading companies in water-intensive industries have weak management and disclosure of water-related risks and opportunities, according to a first-ever report issued recently by the Ceres investor coalition, the financial services firm UBS and financial data provider Bloomberg.
The report evaluates and ranks water disclosure practices of 100 publicly traded companies in eight key sectors exposed to water-related risks. The report shows that many companies are not including material water risks and performance data in their financial filings, nor are they providing local-level water data, particularly in the context of facilities in water-stressed regions.
Using a scoring scale of 0 to 100, the three highest scoring companies were UK beverage company Diageo, Swiss mining company Xstrata and U.S. electric power company Pinnacle West (owner of Arizona Public Services) with 43 points, 42 points and 38 points, respectively. Eighty of the 100 companies scored fewer than 30 points.
“Water is integral to the global economy. Whether you’re in California or China, clean potable water is an absolute must for sustaining communities and sustaining economic growth,” said Jack Ehnes, chief executive officer of the California State Teachers Retirement System (CalSTRS). “This report makes clear that companies are not providing investors with the kind of information they need to understand the risks and opportunities posed by water scarcity.”
With analytical support from UBS, the report evaluates the quality, depth and clarity of water risk disclosure in both voluntary and mandatory corporate reporting through June 2009. The data for the report was provided by Bloomberg’s Environmental, Social and Governance (ESG) data and analytics service. The report assesses companies in eight key sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil and gas and semiconductors.
“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 ‘license to operate’,” said Julie Hudson, global head of SRI and Sustainability Research at UBS Investment Bank. “It is clear that any threat to water security could have a significant impact on the bottom-line of such companies.”
The report scored the companies based on five key categories of disclosure: water accounting, risk assessment, direct operations, supply chain and stakeholder engagement. The mining sector scored highest overall, followed by the beverage industry. Companies in the homebuilding sector had the lowest overall scores.
Only 21 companies disclose targets to reduce water use, and even fewer – just 15 companies – had goals to reduce wastewater discharge. Only 17 companies’ report local-level water data and only a handful provide the information in the context of operations in water stressed regions.
Among the key company scores:
|Sector||Highest Score||Lowest Score|
|Beverage||Diageo (43 points)||Dr. Pepper Snapple (8 points)|
|Electric Power||Pinnacle West/APS (38)||Florida Power & Light (8)|
|Food||Unilever (34)||Archer Daniels Midland & Bunge (9)|
|Mining||Xstrata (42)||Peabody Energy (8)|
|Oil & Gas||BP (35)||Encana (4)|
|Semiconductors||Toshiba (35)||Micron (1)|
|Chemicals||Mitsui (33)||Saudi Basic (5)|
|Homebuilding||KB Home (15)||D.R. Horton, Hovnanian, Ryland, NVR (4)|
The report comes as rising populations, rapid economic growth in developing countries; climate change and growing regulation are triggering growing water availability concerns in the U.S and abroad. The report cites numerous examples where impacts are already being felt by vulnerable industry sectors, including:
The report comes at a time of increasing pressure from investors for improved corporate disclosure of environmental, social and governance (ESG) risks that they face. On Jan 27, in response to investor requests, the U.S. Securities and Exchange Commission issued formal “interpretive guidance” clarifying the type of information that companies should be disclosing regarding material climate change risks and opportunities, including those relating to water-availability risk.
The report builds on the SEC’s guidance with specific recommendations for companies to improve their water-related disclosure. It recommends that companies:
The report also recommends that investors:
Download The full report: Murky Waters? Corporate Reporting on Water Risk.
© 2010, Sharath Bhaskar. All rights reserved. Do not republish.
Author: Sharath Bhaskar (6 Articles)
Graduate Student with MS in Environmental Sciences from New Jersey Institute of Technology.