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Study reveals high cost of global water risk

water

Businesses have lost more than US$14bn (£11.2bn) this year due to the impact of climate change on water resources, according to a damning new report.

Droughts, floods, increased regulations and water scarcity have all contributed to the alarmingly high cost, which is more than five times the £2bn reported last year.

The study – called Thirsty business: Why water is vital to climate action – has been released by CDP, a global non-profit group that tracks corporate environmental performance.

The report has been launched in Marrakesh during the first United Nations (UN) climate change talks since the Paris Agreement came into force, and shows the increase in climate change-related company spending.

“This year’s findings offer two clear lessons for the private sector,” said CDP’s CEO Paul Simpson.

“Firstly, that water risks can rip the rug from right under business, posing a serious threat to bottom lines. Secondly, and crucially, that water will be a fundamental global commodity in the transition to a low-carbon economy.

“Every drop of clean, sustainable water will be essential for the emissions reduction activities countries and companies have planned. This is a wake-up call to companies everywhere to take water more seriously.”

The dramatic increase in spending was largely fuelled by Japanese power giant Tepco, which reported that nearly £8bn was spent this financial year on addressing the Daiichi nuclear power plant groundwater pollution following the 2011 tsunami in Japan.

Other companies such as General Motors described drought-related impacts – it spent £6.4M due to increased water rates and hydro-electric costs linked to drought conditions.

Aerospace and defence firm United Technologies Corporation invested £1.3M in water-saving infrastructure across its six southern California sites, where it expects water constraints will be “a permanent condition”.

Meanwhile, consumer goods company Diageo disclosed a £1.9M spend on conservation measures at one plant, where it saw the average cost of liquid production more than double because of drought in Brazil.

“For a long time companies have taken water for granted as a free and plentiful resource,” said the report’s lead author and CDP’s head of water Morgan Gillespy.

“But these assumptions are unravelling as the impacts of climate change gather pace. From the US$100bn [£80.6bn] worth of energy infrastructure at risk from rising sea levels in Louisiana to Chinese industry facing tightening restrictions on water use, investors are right to worry about the impacts of water risks on their assets.”

By 2030, the UN has estimated global demand for water will exceed available supply by 40%, and year-on-year trends analysis by CDP shows that companies are not adequately preparing for this future.

The study – based on data from 607 companies providing information to investors on their management of and impacts on water resources – highlights stagnant progress in key areas such as tracking water use and undertaking risk analysis.

Additional report findings:

  • 24% of carbon reduction activities planned by businesses – which include switching to nuclear or developing carbon capture technology – are highly water-dependent
  • Companies expect more than half of the 4,000+ water risks they have identified to happen within the next six years
  • The energy sector is the least transparent about water risks, with 77 out of 109 energy companies failing to provide information to investors about their water risk management efforts
  • 24 companies have been recognised as pursuing best practice in water conversation and management.

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