Water security rising to the forefront for companies

Water security is taking on an ever more important role in the context of the climate crisis, which simultaneously accelerates desertification in water-sensitive regions and brings major flooding through extreme weather events—all of which takes a devastating toll on people and the ecosystems they rely on. Companies have a crucial role in building a water-secure, net-zero world and furthermore, CDP, in its recent analysis of companies’ disclosures, finds the cost of inaction is over five times the cost of action. The analysis reveals that while two-thirds of companies are taking action to reduce or maintain their water use, far fewer companies have made real strides on meeting water pollution-reduction targets. CDP outlines six core steps companies should take to enable a pathway to a water-secure world: 1) set bold, ambitious targets; 2) align ambition with business strategy; 3) increase transparency on progress; 4) develop measurable action plans; 5) build governance and accountability structures; and 6) collaborate with suppliers and communities.

CDP’s report, A Wave of Change: The Role of Companies in Building a Water-Secure World, analyses the key findings of 2,934 companies’ disclosures on water risk as part of CDP’s 2020 water security questionnaire. The report “aims to inspire companies across all types of industries and geographies to take the action required” to achieve a vision for water-secure world. It includes a large number of good practice case studies and examples of innovative action from companies across sectors “that have the potential to catalyze transformation and explores the enablers of transformation, including corporate disclosure.”

Why does water security matter?

Rules on water pollution and public health—especially those stemming from pesticide use, dumping of waste, and overuse of scarce water resources—have often been among the earliest environmental regulations put in place by many governments (in the United States, for example, the Clean Water Act was the first major federal law to address water pollution and later contributed to the establishment of the Environmental Protection Agency, which celebrated its 50^th “birthday” in December last year).

But water security is taking on an ever more important role in the context of the climate crisis, which simultaneously accelerates desertification in water-sensitive regions and brings major flooding through extreme weather events—all of which takes a devastating toll on people and the ecosystems they rely on:

• Water insecurity impacts health, food security and other human rights. CDP reports that “[w]ater shortages are affecting more than 3 billion people. The amount of freshwater available per person has plunged by a fifth over two decades.” What’s more, every year almost 300,000 children under five die of diarrhea because of inaccess to clean water. And rising global temperatures only threaten to make this worse: “Projections indicate that if we don’t keep global warming below 1.5 degrees Celsius there will be severe consequences on the availability of sufficient and clean water for basic human needs and for the production of food and energy.”
• Water insecurity impacts our environment and exacerbates the impacts of climate change. CDP reports that freshwater species populations have declined by 84% since 1970, compared to a 68% decline across all species. Further, “we are losing wetlands three times faster than natural forests”—a loss of 87% over the past three centuries. We’re also losing groundwater reserves by withdrawing it faster than it can naturally recharge; groundwater storage is “an essential buffer against the impacts of climate change.”

Why is water rising to the forefront for companies?

• The situation is dire, but CDP’s report emphasises a fundamental point: “The private sector can turn this situation around.” Companies have a “crucial role … in building the water-secure, net-zero world that we all need.”
• Water issues pose risks to people, planet and business. They are often part of complex, circular ecosystems that can amplify risks concealed by the blind spots of companies. This underscores the need for proactive, concerted and ongoing assessment of risks and implementation of mitigation measures. According to CDP, this report “demonstrates that acting to address water issues will cost less than the potential impacts of not acting.”

Below are some of the major findings from the CDP’s report. You can also read the 2020 company disclosures on water risk in full at https://www.cdp.net/en/responses.

Key takeaways

• Inaction on water risk is expensive compared to action: “The cost of inaction is over five times the cost of action. Disclosures through CDP indicate that the potential financial impacts of water risks are far greater than the costs of addressing them.”
• Business transformation and leadership accountability is needed: “A water-secure world requires companies to rethink their strategies and transform their business models. CDP disclosures indicate that many companies are making this transformation; those doing so are those fully integrating water into their strategies and ensuring accountability for water targets at the highest level.”
• Companies are making better progress on managing water use than on preventing water pollution: “Almost two-thirds of responding companies are now reducing or at least maintaining their water withdrawals. However, the very low percentage of companies making progress against pollution targets indicates that businesses still have a way to go to achieve a water-secure world.”
• Water issues are rising to the forefront of company priorities: “Despite the pandemic, in 2020 we saw a 20% increase in corporate disclosure through CDP’s water security questionnaire. This is testament to the fact that companies are both recognizing what is at stake with rapidly depleting water resources, and realizing the power of transparency in turning this around.”

What should companies do to address their water risk?

Based on the findings of its analysis, CDP outlines six core actions for companies across sectors and geographies to take, summarised in a diagram from the report below:

Source: CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

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Source: CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

Source: CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

“Water scarcity and pollution can pose business risks, and the way water is managed by companies can influence their profits. But it can also affect the profits of other companies we invest in that are dependent on the same sources of water.”                        

Carine Smith Ihenacho, Chief Governance and Compliance Officer, Norges Bank Investment Management, “Foreword,” CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

“In the Race to Zero, we cannot afford to neglect water security. Water must be at the front and center of corporate climate strategies. Decarbonizing water use and treatment will significantly contribute to reducing emissions, and wastewater is a huge untapped source of renewable energy. Meanwhile wetlands are a huge carbon sink, storing more carbon that most terrestrial ecosystems. The private sector has a vital role to play in the transition to a water-secure, net-zero world.”                      

‍Nigel Topping, UK High Level Climate Action Champion, CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

“Against a backdrop of nature-loss, climate change and a global pandemic, a vision for a water-secure world is more important than ever. With a clear business case for taking action on water risks, we hope this report inspires companies across all sectors to be part of this vision and place water at the heart of your business strategy – enabling you to not only build resilience but also unlock strategic opportunities that allow you to thrive in and contribute to a water-secure future.”                      

    Cate Lamb, Global Director of Water Security, CDP and UNFCC COP26 High Level Climate Action Champions Lead – Water, CDP, A Wave of Change: The Role of Companies in Building a Water-Secure World (March 2021)

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