CDP Water Forum and Report Observations

CDP released its US Water Report this month (following the release of the Global Water Report) and the results are well… much as you would expect. There has been reasonable growth in participation rate, but overall reporting is still low. The best performing sectors are continuing to do well while the laggards are continuing to lag. However, upon closer inspection there is more to glean from this report and how businesses have chosen to respond to it, or not.

The following are a few observations after reviewing the report and participating in the October CDP Global Water Forum and November CDP US Water Report 2013 Launch events held in San Francisco, CA.

To provide some context to the following highlights and opinions, it is worth noting that CDP’s Water survey has not been scored to date.However CDP plans to provide scores privately to participants for responses submitted in 2014.

A selected assortment of report highlights:

• 43% of S&P 500 companies responded to CDP’s water survey in 2013, an increase of 5% from 2012. 60% of the Global 500 corporations reported.
• 46% of S&P 500 companies have experienced detrimental impacts related to water in the past 5 years, a 3% increase from 2012.
• 63% of S&P 500 companies identify water issues as a substantial risk to their direct business operations.
• 32% of S&P 500 companies organizations have board level oversight of water related issues; this is significantly less than the performance of the Global 500 companies (58%).
• S&P 500 response rate by GICS sectors is skewed toward consumer facing companies (e.g. Consumer Staples 64% vs. Energy 24%)
• The survey will expand into India, China, Japan, and Latin America in 2015.

What does this mean?

Water related risks are still not perceived by S&P 500 companies to be significant to their businesses. We are seeing a slow increase in awareness of the potential risks to business, but this awareness is primarily focused on direct operations with very little attention paid to supply chain or resource stewardship. The majority of companies lack executive engagement, vision, or strategy to address water related risks. Most worrisome is the fact that several of the S&P 500 largest water consuming sectors (Utilities, Industrials, and Energy) have the poorest response rate to CDP’s water survey.

Why is the water issue being recognized slowly?

There are many well documented reasons:

• The true value (monetary and social) of water is disconnected from what consumers have enjoyed historically
• The limited understanding of the water and energy relationship (interdependency)
• The regional, even community, level of the resource management challenge

These and other factors combined enable companies to misunderstand the complexity of the water challenge and in particular the value of water beyond operational cost. There is a social aspect of water due to its regional nature that impacts business continuity (one’s social license to operate) and brand value. Additionally many companies in high water consuming sectors may consider water management a compliance issue and choose to keep their engagements and communication on the topic separate.

Whatever the reasons for the slow socialization and acceptance of the water resource challenge among North American businesses, the fact remains that water is and will continue to become a more regionally dynamic, and often limited, resource to be managed and will require active stewardship by all stakeholders. As important as climate change is, water has different issues but is also affected by climate change.

Looking Forward

Based on our experience with the CDP Climate Change questionnaire, we expect the development and engagement with companies to be faster with the Water questionnaire for several reasons:

• Corporate communities’ familiarity with CDP’s survey and reporting process
• Current competitive nature of ESG report, and
• Water (scarcity, pollution, flooding, etc) is a more tangible issue for customers and shareholders.