Institutional investors are urging companies to measure, disclose and reduce their use of water to reduce long-term financial risks as supplies dry up from overuse and as higher temperatures melt glaciers away.
"Companies need to be analysing their water risk ... and to find ways to conserve water and minimise the opportunities for literally having their business shut down," Mindy Lubber, the president of Ceres, a Boston-based coalition of investors said in an interview.
Ceres directs the Investor Network on Climate Risk, a group of nearly 80 US and European investors, such as retirement funds, that manages more than $7 trillion. As shares in many companies reel from the economic crisis, a few are beginning to reassess their entire set of risks to regain the trust of investors.
Water waste has risen as a concern amid the 2007 drought in the US Southeast, the current California water crisis and concerns that rising temperatures will eliminate mountain glaciers in China, India and other countries, leading to greatly reduced summer river flows.
"Where will the water come from if not from these glaciers?" said Jason Morrison, an expert at the Pacific Institute and lead author of "Water Scarcity and Climate Change," a report commissioned by Ceres released on Thursday. "Climate experts understand that water will become one of the most significantly affected resources as the result of climate change, but most in the private sector haven't appreciated that," he said.
The investors want companies to measure not only their direct use of water, like that used directly to make products, but also water used deeper down the supply chain.
WATER FOOTPRINTS:
Some companies have started to drill down the supply chain to measure their water footprints, much like a wave of companies before them have measured their carbon emissions. Late last year, companies such as PepsiCo, Coca-Cola Co, SABMiller Plc and Unilever partnered with environmental and governmental groups to form the Dutch-based Water Footprint Network, which helps companies measure their thirst.
The network estimates, for example, that producing 2.2 pounds of beef (1 kg) takes an average of 4,230 gallons of water (16,000 liters) for the irrigation of feed crops and other inputs. A cup of coffee takes about 37 gallons of water.
Much water is replaced through natural cycles, but as water is siphoned off for agriculture, businesses and home use, aquifers are drained faster than they are being recharged.
Companies face risk not only from losing immediate supply but also from toughening regulations, Morrison said. The sectors most at risk are agriculture, high-tech components such as semiconductors, and beverages. In 2004 a Coca-Cola plant was forced to shut in India after locals said the company was depleting water supplies. Potential shutdowns across the range of businesses could damage corporate reputations, Morrison said.
Companies that have been polluting water supplies with factories in developing countries like China could face the risk of rising regulatory costs as governments adopt tougher environmental laws.
To be sure, the sheer volume of water a company uses is not always a good indicator of its impact on supplies. Water used in a dry region is different than that used in a wet one. For that reason the Water Footprint Network is also starting to measure the impacts of heavy use in the most water-stressed regions. Derk Kuiper, the director of the network, said the group should make progress on that issue before the year ends.
Once companies measure and understand their water intake they can begin to cut their use or invest in offsets like efficient irrigation projects. Still, not many are taking part. "A preponderance of companies are not looking at the risks," said Lubber.
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