There’s opportunity for companies who value water, and treat it as an essential resource for generating long-term value. In order for companies to take full advantage of the resource, including risk management, they must have an integrated business strategy that incorporates plans for water use, reuse and good corporate stewardship.
Lance Pierce is President of CDP North America (formerly Carbon Disclosure Project). The global not-for-profit organization and founder of environmental disclosures houses the world’s largest platform for investors, corporations and cities to share data, manage performance, and build action programs on climate, energy, water, forests and supply chains.
Pierce has spent his career building new ventures and partnerships for impact at the intersection of international development, corporate social responsibility, sustainability and public/global policy. His work spans NGOs, the public sector, strategy consulting and Fortune 20 corporate experience across Asia, Europe and the Americas.
Christopher P. Skroupa: What kind of opportunity arises when companies change their business plan to value water?
Lance Pierce: No business can operate without water. Water is perhaps the least valued of the essential resources required to run our businesses – as well as our society. We often only fully appreciate this when disasters disrupt water supplies and clean water becomes scarce, or when businesses choose to expand without sufficient foresight and planning.
When we take adequate water for granted, we can find ourselves unpleasantly surprised. CDP, formerly Carbon Disclosure Project, is a not-for-profit organization that houses the world’s largest collection of self-disclosed corporate environmental data. Through company disclosures about water risk and opportunity, and about changing water availability due to growing consumption and a changing climate, we see based on data the clear advantages of strategic water stewardship.
Better stewardship of this vital resource can reduce risk, enhance preparedness and make growing businesses more resilient in the face of increasing drought, and more frequent catastrophic storms that disrupt water supplies. We see some strong examples of this via the data that companies disclose to CDP. In Los Angeles, the French waste and water giant SUEZ’s West Basin County water recycling facility is leading the way.
It produces 240,000 cubic meters per day of recycled water, equal to the consumption of more than one million people. Representing 22% of water resources of the County by 2020, the facility helps reduce the dependency of the Los Angeles region on conventional resources as well as on imported water, despite growing demand.
Skroupa: How does risk management relate to the long-term value of water?
Pierce: Water is the resource we most take for granted, and yet it becomes clearer every day that companies and communities will not be able to operate under the same, business as usual water scenarios as they have in the past.
Investors are also concerned, asking about whether companies have sufficient water management and conservation strategies. Investors work through CDP by requesting that companies whose shares they own in their portfolios disclose their water-related risks and opportunities. Better transparency and a shared window of understanding onto the water risks faced by businesses help share owners and business leaders better chart a path to managing these issues. The information contained in CDP disclosure filings tells the story.
Colgate Palmolive, the American worldwide consumer products company, reports that over the course of 2015 their manufacturing sites in Brazil have invested in numerous water recycling technologies as a way to treat and reuse water for utilities such as cooling towers and boilers. These investments ensured continued operation during the recent water crisis in São Paulo, which is the most populous city in Brazil and Americas, and was faced with its greatest water crisis in almost a century.
From the 533 cities reporting to CDP in 2016, 61% foresee a risk to their water supply and are seeking investment in existing infrastructure, stormwater management, watershed preservation and diversifying their water supply. 111 US cities reported to CDP in 2016, and 74 of them report substantive risks to their cities water supply in the short or long term.
Companies reported US $14 billion in water-related financial impacts in 2016, a five-fold increase from 2015. For example, Suncor Energy reported higher operating costs of US $165 million due to emerging water quality requirements that require substantial improvements in the quality of effluents discharged from its refineries.
With water insecurity worsening through many parts of the world coupled with 63% of cities and 43% of companies disclosing exposure to water risk, it’s never been more crucial to undertake a water related risk assessment. As a result, when companies, cities and investors are working together, they are increasing the security of their own water supply and help reduce carbon emissions.
Skroupa: What does the future look like for water? What new business trends do you see across the global economy in regards to water and generating value?
Pierce: CDP works with companies, investors and cities to achieve a water secure world for all by 2030. To get there we need a sharp U-turn in how we manage our natural resources.
As companies set targets in line with another CDP effort, the Science Based Targets Initiative, they are also moving towards setting corporate water targets – context based water targets – to help mitigate their risk and secure clean water supplies. A Science Based Target is one where a company sets their greenhouse gas emission reduction targets in line with climate science.
A Context Based Target for water is one that takes into account the place where the water is sourced, the people who do or will want to use that water now and into the future, and the climate-related risks that may affect the supply of water at the source going forward. CDP has partnered with The Nature Conservancy, Pacific Institute, World Resource Institute and World Wildlife Fund to develop an approach for setting meaningful corporate water targets that take into account the unique local contexts of the basins in which companies operate.
This context-based approach is not only necessary for protecting water resources, it can also liberate business value through a sharper focus on natural capital strategies. It can also help drive corporate alignment with effective public good water objectives such as those found in the Sustainable Development Goals. A concerted effort is needed to ensure that actions taken by companies and cities are effective enough to address the shared water challenges in the basins in which they operate. As action on water linked to a changing climate accelerates, we are seeing a clear trend in our disclosure data, as environmental action goes mainstream in strategic business decision making.
Skroupa: How has water’s value changed in the global economy in the past decade? How are companies using it to create long-term value?
Pierce: Global demand for water is forecast to nearly double over the next 15 years, and just twelve years from now, the United Nations predicts a 40% shortfall in global water supply. In a rapidly changing world, the basics that were beneficial and taken for granted a decade ago may already be subject to dangerous shortfalls today or in the near future.
More companies than ever are recognizing the value of water through responding to CDP’s Water Program. Established in 2010, we have seen an increase in the number of responding companies of 714%. In 2010, CDP had 176 responding companies, and that number has grown dramatically to 1432 responding companies in 2016.
The same can be said for investor interest in water. CDP Investor Signatories, the group of global financial firms, pension funds and others who work with CDP, have increased 369%; from 137 in 2010 to 643 in 2016. Investors and companies both have woken up to the fact that failing to manage your water issues can have a significant impact on a company’s bottom line.
CDP has seen that both corporations and investors are starting to realize the true value of water. This is not entirely dependent on what water costs, but rather lies in companies’ ability to ensure business continuity, sustain their license to operate and maintain their brand value.
Although in most parts of the world water is cheap, increasing demand for a scare resource will inevitably push prices up as General Motors Company recently found in Brazil. Drought pushed up water costs by US $2.1 million in 2015, at the same time as reduced availability of hydropower pushed up electricity costs by US $5.9 million — another sign that water security is inextricably bound up with how we understand and deal with a changing climate.
Pierce previously held senior positions in climate, sustainable investing and corporate responsibility, including Executive Director of Ceres, the host organization of the $13 trillion Investor Network on Climate Risk and founding Director of the Climate & Energy Program at the Union of Concerned Scientists. In CSR, he has worked with AFP, the world’s third largest news agency, the World Bank and served as Director, Corporate Issues Management for former Fortune 20 food and consumer goods parent company, Altria Group.
CDP is a sponsor for the Water & Long-Term Value program on October 24-25 in San Francisco, California. While Pierce will not be speaking on a panel, his colleague Christina Copeland, Manager for Water at CDP, will be speaking on two panel discussions.