Focus On Water Isn't Dampening

Water definitely is on my mind at the moment. I am writing this column only two days after Hurricane Sandy struck the East Coast. The storm's high winds caused massive damage and electrical outages. Blustery conditions aren't that unusual in the Northeast, though. What is rarer, thankfully, is the massive flooding that destroyed entire towns. The storm surge in lower Manhattan reached 13.9 ft, well above the previous record of 11.2 ft set in 1821.
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So, the title of a report "Collective Responses to Rising Water Challenges — CDP Global Water Report 2012" issued by the Carbon Disclosure Project (CDP) just a week before Hurricane Sandy wreaked havoc has an unintended resonance.

In 2010, the CDP, a London-based international nonprofit group that numerous companies use to report their greenhouse gas emissions, extended its focus to water. It launched an initiative called CDP Water Disclosure and issued its first report in 2011 (see: Is Water The New Carbon?). This year, along with the global report, the group released its first U.S.-focused one, "Gaining Competitive Advantage in a Water-Constrained World — CDP U.S. Water Report 2012." Both were written by Deloitte Consulting and are available at www.cdproject.net/en-US/Pages/HomePage.aspx.

The CDP invited 318 companies on the FTSE Global Equity Index Series (Global 500) — ones operating in sectors that are water-intensive or exposed to water-related risk — to provide information for the global report, and 191 (60%) did. Air Products, Akzo Nobel, BASF, Bayer, BP, Dow, DuPont, Eli Lilly, Merck, Occidental Petroleum, Pfizer, Sasol and Suncor are among the firms that answered the CDP questionnaire. Chevron, ExxonMobil, Petrobras and Shell are among those that declined to participate. Among countries with eight or more respondents, Germany boasted the highest response rate (100%), followed by France (81%), the U.K. (77%), Japan (74%), Canada (73%) and the U.S. (61%).

More than half (53%) of respondents had endured challenges such as water scarcity, flooding and poor water quality during the past five years. Over two-thirds (68%) viewed water as a substantial risk to their business. On the other hand, 71% noted that water would provide business opportunities such as sale of new products and services; 79% of these opportunities already have materialized or should within the next five years.

A majority of respondents (58%) reported board-level oversight of water-related policies, strategies and plans. Slightly fewer (55%) said they had specific water-related goals and targets. These responses are similar to those in the 2011 report and indicate to the CDP that water isn't getting the boardroom attention needed.

"We look to Global 500 companies for examples of leadership," notes Paul Simpson, CEO of the CDP. "While it is encouraging that their awareness of the commercial risks and opportunities associated with water is improving, progress in responding to them is varied and, in many cases, insufficient. We need to see greater corporate accountability through more transparency, concrete targets and goals, and board-level oversight of water-related issues." He adds: "We know that it can take companies some time to catch up with measurement, strategy and action once they identify risk, so we expect to see more companies developing water strategies and disclosing next year."

"Water is a shared resource. As a result, long-term solutions to address water-related risks require collective action," comments Will Sarni, director and practice leader for enterprise water strategy at Deloitte. The report provides upbeat news in that regard. While companies traditionally have tackled water-related issues independently, 74% of respondents said they had taken some kind of collaborative action and working with other interested parties will continue to play an important role in their strategies. "The adoption of collective action initiatives reflects a strategic shift in thinking about water as a management issue to embodying water stewardship as a business strategy," says Sarni.

The U.S. report embodies responses from 141 firms (41%) of 345 on the Standard & Poor's 500 that were invited to participate. In many respects, results don't differ markedly from the global report. However, more U.S. firms (81%) have a water policy, strategy or management plan but only 52% have set quantitative goals and targets, and water-related issues get board-level oversight in just 29% of the firms.

The persistent drought that has afflicted many areas in the U.S. colors responses, says Sarni. Many companies aren't accepting business as usual and are identifying opportunities to create value from innovative technologies and business initiatives, he adds.