BOSTON and RIO DE JANEIRO -- Overall corporate disclosures of water-related risks have increased since 2009, but most reporting remains weak and inconsistent according to Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings, a new report issued today by Ceres.
Since 2010, the Securities and Exchange Commission has required companies to disclose financially material risks from climate change to their investors. These risks include “significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.”
In light of this guidance, Clearing the Waters analyzes changes in water risk disclosure by more than 80 companies between 2009 and 2011, finding that though reporting has risen, it is lacking especially in regard to data on financial impacts, quantitative water metrics and potential supply chain risks. The report covers water use in eight water intensive sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil & gas and semiconductors.
Brooke Barton, senior manager for Ceres’ water program, presented the results of the report yesterday in the “Emerging Best Practice in Corporate Water Disclosure” session at the Rio+20 Corporate Sustainability Forum in Brazil, where water issues are a critical focus of international discussions.
As a result of the increasing impacts of climate change and economic and population growth, many regions of the world are on course to suffer major fresh water deficits in the next 20 years. Recent studies suggest the world may face a 40 percent global water shortfall by 2030. Drought and flood cycles have also led to billions of dollars in losses for corporations worldwide. Drought in China in the spring of 2012 left 3.5 million people with limited or no access to drinking water and cost the affected provinces an estimated $2.3 billion. Flooding in Thailand in November 2011 cost the semiconductor industry an estimated $15-20 billion.
The trend continues in the United States. In early June, “obscene” amounts of rain inundated the Florida panhandle and coastal Alabama, resulting in more than two feet of precipitation and at least $20 million in flood damage. The region had previously been classified as in severe or extreme drought, increasing in turn the severity of the flood. Florida officials recognize that this cycle is damaging to local industry and have called for increased disclosure of risks.
“Corporations have increasingly acknowledged the importance of water, and its stewardship, as a growing business risk with direct impact on their operations,” said Michael P. McCauley, Senior Officer, Investment Programs & Governance at the Florida State Board of Administration. “Because efficient companies can gain an economic advantage by prudently managing their use of water, many investors support clear disclosures surrounding water use and management. As a result, corporate water use has become a more significant corporate governance factor.”
Clearing the Waters expands upon research detailed in Murky Waters: Corporate Reporting on Water Risk in 2010. Key findings of the report include:
- Significantly more companies are disclosing exposure to water risk, with a focus on physical risk: 87 percent of companies now report physical risk exposure versus 76 percent in 2009, with the biggest increases coming from the oil and gas sector.
- More companies are making the connection to climate change: In 2009, only eight of the 82 companies assessed (10 percent) disclosed that climate change posed growing physical risks in the form of water scarcity, flooding or quality issues to their operations and supply chains. In 2011, that number jumped to 22 (27 percent).
- There is a continued lack of quantitative data and performance targets: Despite improvements in overall disclosure, data on company water use and the financial impacts of water-related risks remain infrequent in financial filings.
- There is growing, but still limited, disclosure on water management systems and performance.
“Most companies recognize the need to disclose water risk, but so far the information they are providing lacks specificity and the hard numbers their shareholders require to invest responsibly,” said Mindy S. Lubber, president of Ceres, which published the report. “Water issues are one of the most immediate and deeply felt impacts of climate change across the world, and leaders at Rio+20 are well aware of that reality. Whether through water scarcity, extreme weather or loss of property to floods, corporations and their suppliers across the globe are exposed to water risks and can do more to avoid them. Disclosure is the first step, and it must be followed quickly by action.”
In light of these risks, the report recommends that companies:
- Undertake ongoing and more robust analysis of potential water-related risks
- Augment qualitative disclosure with more quantitative data in SEC filings
- Ensure compliance with the SEC’s guidance on climate change disclosure
- Provide investors with information on how they are mitigating water risks
Companies seeking to develop more comprehensive management responses to water risk should see the 2011 Ceres report, The Ceres Aqua Gauge: A Framework for 21st Century Water Risk Management.
To download a copy of the Clearing the Waters report and learn more about Ceres work in water issues, please visit http://www.ceres.org/reports.
Ceres is an advocate for sustainability leadership. Ceres mobilizes a powerful coalition of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy. Ceres also directs the Investor Network on Climate Risk (INCR), a network of 100 institutional investors with collective assets totaling more than $10 trillion.
For more information, visit http://www.ceres.org