Water access is a major issue globally, whether in terms of health, nutrition or fighting inequalities. It has been marked as a global priority as one of 17 United Nations Sustainable Development Goals (SDGs). It is also a vital resource for the economy. Today, 70% of global water withdrawals come from agricultural supply chains and 19% from industrial related activity.
In this context, large companies must find a balance between using a resource essential to their production and/or products and coming up with ways to preserve it. This is a seemingly impossible situation, according to the latest CDP study (1), published on 22 March.
$38 billion in water-related financial losses in 2018
Large companies are indeed aware of water stress risks, reinforced notably by climate change but also due to conflicts and demographic pressure. Three-quarters of the companies solicited by CDP consider themselves to be exposed to "substantial water-related risks" such as scarcity or degradation.
Such risks could disrupt their production, affect the quality and reputation of the brands and/or the company and, ultimately, cause them to lose their license to operate in certain regions. Water-related crises are one of the major economic risks that have been identified by the World Economic Forum’s Global Risk Report for several years now.
Material risks already exist: in 2018, companies (primarily extractive, energy and pharmaceutical sectors) reported $38 billion in water-related financial losses. The social consequences of the multitude of water-related crises could be disastrous: globally, three out of four jobs depend on reliable water sources.
More and more companies have started making commitments to reduce water withdrawals. But their actions remain insufficient. For the past three years, a growing number of companies admit to having actually increased their water withdrawals. The CDP highlights that this is a particularly significant trend in Asia and Latin America, specifically in the food, beverage, agriculture, manufacturing and mining sectors.
A transformation for the production, distribution and decision-making chain
According to the CDP, a tool for advancing companies in this area would be to encourage - especially financially - senior executives and boards of directors to better manage water issues. To date, only 31% of companies have done so, such as Diageo, L'Oréal and Microsoft. Another strong tool: the transformation of the retail sector, identified as the least transparent sector in terms of water management.
"Comprised of businesses near the top of the agricultural value chain with large revenues ($28 trillion forecast in 2018), the retail sector can potentially stimulate substantial improvements in water performance amongst meat producers, cultivators and dying plants worldwide," says the report.
"We are faced with a choice," says Paul Simpson, CEO of the CDP, "Either take the opportunity of the current transition to stabilise the climate and water supply or continue business as usual and manage considerable risks". In 2030, 40% of global water demand will not be met, according to the OECD...
Béatrice Héraud @beatriceheraud
(1) The CDP report, Treading Water 2018 analysed water data from nearly 783 publicly traded companies, employing more than 36 million people around the world with a market capitalisation of $18 trillion. The CDP is a non-profit organisation supported by investors representing $96 trillion in assets.