CDP: water a substantial risk to ASX100 companies

More than two thirds of 22 ASX100 water-sensitive companies responding to a Carbon Disclosure Project (CDP) request for disclosure on water management identify water as a substantial risk to business, but only 55% report board-level oversight of water-related policies, strategies or plans.

Marcus Norton

The CDP sent its Water Disclosure questionnaire to 54 companies in the ASX100, while also sending questionnaires to peers in the FTSE Global Equity Index Series (Global500) and the Johannesburg Stock Exchange (JSE). According to the CDP report, Shining the light on corporate water performance, 59% of ASX 100 respondents identify exposure to water-related risks in their direct operations, as compared to 55% of Global 500 respondents and 85% of JSE 100 companies that report exposure to similar risks.

“Australia is the driest inhabited continent on earth, and the water impacts of climate change are likely to be more severe than other countries,” said James Day, CDP’s director – Australia and New Zealand. “Australian company performance should be stronger and more rigorous than the oversight of companies in other, less water stressed nations around the world.”

The total percentage of respondents from the ASX100 was 41%, lower than the response rate from the Global 500 companies, with a 61% response rate and a 46% response rate from the JSE100.

“Given the acuteness of water stress in Australia and the fact that 50% of ASX 100 respondents (11) report that they have experienced detrimental water-related business impacts in the past five years (compared to 38% (73) of the Global 500 and 58% (15) of the JSE 100), a stronger response might have been expected from Australian companies on this critical issue,” the report said.

“One of the really important points is that water is a current risk, and not an issue for the next  five, 10, 15 years,” said Marcus Norton, co-author of the report and head of CDP Water Disclosure. “Really, we’re seeing that companies are being impacted now and the risks are current … Half of the ASX companies [responding] have suffered a detrimental impact and two thirds report exposure to risk that can generate substantive change to business.”

The majority of the 22 respondents came from the materials sector.

“There was a much higher response rate from the materials sector than from other sectors,” Day said. “I think it’s partly that the materials sector is a larger proportion of these groups of companies, and partly also that the materials sector has potential to significantly impact water quality and water is a material issue to many companies in the sector. Access to water is critical to many mining companies in particular … Many mining companies also recognise that having a strong reputation as a water manager has importance part to play in their ability to retain their license to operate and gain access to future mineral resources.”

Of the companies that responded, 91% had good overall awareness of water risks within direct operations, but only 68% had visibility of water risks for supply chains. The report noted that three companies that responded are in the process of, or are planning to carry out a supply chain water risk assessment.

“I’m not especially surprised that the awareness of supply chain risk is limited,” Norton said. “When we formulated the first questionnaire for the 2010, we talked to a lot of investors and a lot of companies, and companies said that if you ask these questions, we won’t have good visibility. We are just getting around to managing carbon in our supply chain. From an investor perspective, they were keen that we include these questions, because it potentially presents such a large proportion of water use. A simple example of that would be beer – it varies from company to company and facility to facility, but generally speaking, it might take three to five pints of water in the brewing process to make a pint of beer. But if you include all the water in the supply chain, it’s more like 150 pints of water to make a pint of beer.”

The majority – 59% of respondents also identified water-related business opportunities, with the most frequently reported opportunities including efficiency gains and improvements in brand value. Setting targets is becoming a standard response to managing water risks, the report also notes, and companies are “starting to identify linkages between water and carbon management.”