Inaction on Water Risk will Cost Corporates More – CDP

Only 4.4% of companies reported progress against water pollution reduction targets.

Financial risks posed by water usage currently total US$301 billion, according to companies reporting to global disclosure system CDP. However, these risks can be addressed through a short-term expenditure of US$55billion, a fifth of the longer-term cost inaction presents.

The ‘Global Water 2020’ report further noted that there are business opportunities on offer by investing in water security, estimated at US$711 billion.

With global water use, storage and distribution contributing 10% of global greenhouse gas (GHG) emissions, funnelling money into addressing these issues is a key part of making a net-zero transition, CDP said.

Looking across sectors last year, CDP identified that corporates increased capital expenditure within the most prevalent problem areas of water risk, including improving pollution abatement and control (US$13.2 billion), infrastructure investments (US11.6 billion) and new technologies (US$9.2 billion).

Companies representing a quarter of global market capitalisation (2,934 companies) disclosed water security risks, impacts and actions through CDP, a 20% increase on 2019. The combined business value at risk was also higher (US$425 billion) in 2019, showing that corporates are engaging with water-related issues.

Investors managing over US$110 trillion in assets have requested companies to better disclose on water risks to CDP in 2021, the report added.

While two-thirds of companies that disclosed in 2020 claiming they were either reducing or maintaining their water usage, just 4.4% reported positive progress in water pollution reduction targets, revealing inconsistent progress.

“Action here is severely lacking and must be urgently scaled-up,” the report said.

In a previous ESG Interview, KBI Global Investors Portfolio Manager Martin Conroy emphasised the importance of investor engagement with corporates to resolve the growing challenges surrounding water scarcity.

CDP highlighted examples of good practice, including L’Oréal’s development of ‘waterloop factories’, which recycle process water on production sites, and Unilever’s ‘dry personal care’ range for water-stressed areas, which is estimated to generate US$2.2-3.4 billion in sales by 2025.

“Taking action on water risks is essential for climate action and it makes business sense. It can stimulate economic development and create jobs, contributing to a green economic recovery from COVID-19 in the short term – while also building long-term resilience,” the report said.

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