New guidance seeks to end information deficit for investors, encourages firms to incorporate water related financial risks and opportunities in mainstream reporting.
The Climate Disclosure Standards Board (CDSB) has issued new guidance to help businesses report water related information and make it easier for investors to assess often hefty financial risks.
The CDSB, an international consortium of business and environmental NGOs, said that its Framework application guidance for water-related disclosures – Water Guidance – offers companies a “means of developing their reporting practices and ensuring that investors are receiving the material water-related information needed for effective capital allocation to drive the transition to a sustainable, resilient and water secure economy”.
The guidance also helps businesses integrate this information in their mainstream financial statements, making the links between environmental and financial performance.
CDSB’s Water Guidance aligns with existing water reporting standards and practice and helps businesses to apply the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) beyond climate to water.
It includes disclosures on firms’ governance around water policies, water related risks and opportunities and sources of environmental impact such as the discharge of wastewater.
Sustainable management of water is essential for businesses given that in 2020, according to CDP, corporates reported water-related risks totalling US$301 billion. The same study found that the cost of response in mitigating these risks was an estimated US$55 billion.
In addition, the recently released Sixth Assessment Report by the Intergovernmental Panel on Climate Change stated that evidence of observed changes in [climate] extremes such as heatwaves, heavy rainfall, droughts and tropical cyclones and “in particular, their attribution to human influence, has strengthened”.
Despite this, according to the CDSB, there is an information deficit for investors on the reporting of material water-related financial risks and opportunities in mainstream corporate reports.
Investors, added the CDSB, need “high-quality financial information on material risks, opportunities and associated performance faced by companies in relation to water to enhance their investment decisions, helping them to manage risks and invest in sustainable and resilient businesses”.
Mardi McBrien, Managing Director of the CDSB, said: “Water issues pose immense risks for businesses and society. The recent dramatic droughts in the United States and Australia and the flooding in Europe and Asia clearly illustrate that. Companies are facing growing investor pressure to provide decision-useful information on risks and opportunities associated with water, and this can and should be done with the same rigour as financial information.”
A new online course, based on the guidance, is also available on the TCFD Knowledge Hub. The guidance complements the CDSB Framework and is part of a series of resources that help businesses navigate the disclosure on the nexus between climate, water and biodiversity.
The biodiversity guidance is due to be published in the fourth quarter this year.