Industry

Investors Seek to Pull Plug on Water Risks  

Six tests set for corporates by investors to demonstrate commitment to sustainable water use.  

Institutional investors representing almost US$10 trillion in AUM are demanding improved water management practices from major corporates in response to increasing evidence of a global water crisis.  

The Valuing Water Finance Initiative (VWFI) is coordinated by US sustainable investment network Ceres and is partly modelled on Climate Action 100+, the investor-led global grouping which engages with the most carbon-intensive corporates.  

By signing up to the VWFI, 64 investors with combined assets of US$9.8 trillion have committed to engage with 72 of the world’s largest corporate water users to increase awareness and improve management of water-related risks and impacts.  

Signatories will ask investee firms to demonstrate their commitment to sustainable water use, including adoption of appropriate governance practices, with reference to a set of six core expectations across water quantity, water quality, ecosystem protection, access to water and sanitation, board oversight and public policy engagement.  

The expectations set out actionable steps for corporates and are aligned with UN Sustainable Development Goal 6 – universal access to clean water and sanitation. Members of the initiative will use the first rounds of engagement feedback to establish a benchmark for management of water usage, which will be used subsequently to track progress over time.  

“Institutional investors cannot meet their fiduciary obligations without factoring water into their engagement strategies. It’s never been more imperative that companies achieve sustainable water management through intentional use, pollution reduction, governance and other strategies,” said John Anzani, a member of the Executive Committee of the Local Authority Pension Fund Forum, a UK-based signatory to the VWFI.  

Unsustainable practices 

Drought conditions across the northern hemisphere have increased attention on water scarcity and quality issues, but awareness of the unsustainability of current practices in certain industrial sectors has been rising for close to a decade.  

In May, CDP noted that listed equities were exposed to water-related risks valued at US$225 billion, with 69% of public firms reporting to the disclosure platform admitting to water risks that could “generate a substantive change in their business”. 

Earlier this year, the World Resources Institute (WRI) estimated that global water usage would outstrip supply by 56% by 2030, calculating also that US$1 trillion a year needs to be spent to address the issue across supply and demand management measures.  

VWFI signatories will focus on four main sectors initially, targeting firms in food, beverages, apparel and technology. WRI estimated that farming accounts for around 70% of global water use.  

Kirsten James, Senior Programme Director for Water at Ceres, said engagement activity would be tailored to the circumstances of individual companies.  

“We want to meet companies where they are. Not every company on the list is a laggard or leader, but they are in an industry that is using a lot of water or polluting water resources.” 

James hoped the initiative would increase awareness of the external implications of corporates’ water use and said there was a possibility of a rise in the number of shareholder resolutions focused on this issue. Earlier this month, a resolution asking for electric vehicle manufacturer Tesla to report on its water risk was unsuccessful.  

Ceres’ James added that private-sector initiatives such as the VWFI has to be supplemented by increased policy and regulatory action from the public sector.  

“We are supportive of regulatory measures to secure additional disclosures,” she said, noting that Ceres had called for increased disclosure by corporates about assets’ exposure to high water risks in its response to the recent consultation on climate risk disclosures conducted by the US Securities and Exchange Commission.  

Regulatory pressure to report on and quantify water risks was necessary, she added, given that relatively few firms are currently conducting robust water risk assessments.  

Building the case for engagement  

The initiative has been developed by the Valuing Water Finance Task Force, a group of investors and NGOs coordinated by Ceres, including ACTIAM, AustralianSuper, California State Controller Betty T. Yee, New York City Comptroller Brad Lander and Dutch pension fund PGGM.  

Ceres has also developed a suite of resources and tools to draw investors’ attention to water risks in their portfolios and to build the scientific and financial case for investor engagement with firms on water usage.  

Earlier this year, Ceres published its Global Assessment of Private Sector Inputs on Water, which outlined key threats across 12 industries. The report said threats such as groundwater depletion, metals contamination, plastic pollution, diversion and transfer of water, and excessive nutrient loading were being driven across multiple industries, with food and beverages, household products, and textiles being mainly responsible for the latter. 

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