A vanishingly small proportion of large companies are adequately managing risks posed by water shortages, drought and pollution, according to research by EIRIS.
The London-based research house specialising in environmental, social and governance (ESG) issues surveyed 3,000 large companies globally identified as exposed to water risks.
Only 0.22% were adequately managing these risks - all of which were in the chemicals and pharmaceuticals sectors. Around half showed no evidence of a management response to water risk.
However, 22% of water-exposed companies demonstrate they track water consumption and almost 10% have set targets related to water consumption or water quality, EIRIS found.
At a conference on investor exposure to water risk in London this week, EIRIS research analyst Randeep Sanghera, who worked on the report, suggested that the cluster of better management in chemicals and pharmaceuticals may be a result of the sector having to deal with issues such as products contaminating the water supply, while pharmaceuticals firms often require large volumes of very high quality water as an ingredient, he added.
James Winpenny, a consulting author for UNESCO's world water assessment programme, said that too many companies are relying on exercises such as calculating their 'water footprint', which may not give the full picture. 'A firm which has a very small water footprint per se, may still be vulnerable to interruptions if it's in a water-stressed area,' Winpenny noted.
Data quality on water exposure is lacking
Meanwhile, the data on which these assessments of water risk are based is limited and not granular enough, argued Kirsty Jenkinson, director of the waters and enterprise programme at the World Resources Institute in Washington, DC. 'There's really a dearth of information,' she warned, particularly 'granular data that can really inform strategic decision-making' at a company.
The WRI has set up a programme to address this information gap, supported by corporate sponsors, called Aqueduct, she said. One programme sponsor, Coca-Cola, has already produced a detailed map of current and predicted water stress, which breaks down by region, not just averaging out by country - a process which can conceal pockets of droughts and shortages.
The project is producing a water risk atlas for use by companies and investors, which will eventually map the risks of every distressed water basin in the world, broken down by sector, although work has only been completed on the Yellow River Basin in China.
Lara Yacob, a senior engagement specialist at Dutch bank Robeco, agreed: 'It's been quite challenging to find this level of information … for ESG purposes.'
But investors are increasingly paying attention to water risk in their portfolios, she added, pointing to investor-led efforts to improve disclosure, through the Carbon Disclosure Project and the UN Principles for Responsible Investment. 'It's just a matter of time until the laggard investors are left behind,' Yacob warned.