Water Scarcity as a Business Risk in Global Emerging Markets
Thomas Cobti, Sakis Kotsantonis, Dylan Rees-Williams
The increasing frequency of water-related events like droughts and floods has prompted investors and companies to better understand the potential impacts of water risks on their portfolio and activities.
Water issues are becoming highly material factors affecting the growth and profitability of companies in many regions of the world. They create material, physical, regulatory and reputational risks and opportunities. In fact, leading corporations disclosing on the CDP Water framework reported US$14 billion in water–related detrimental impacts in 2015-2016. These companies also expect over half of the water risks they have identified to materialize within the next decade.
This report examines the practices of 50 publicly listed companies in terms of integrating water scarcity in their assessment of business risks. The objective is to assess the vulnerability and resilience of these 50 companies, identify industry leaders and laggards among them, and highlight best practices from within and outside the sample.
We developed a framework to help us assess the characteristics of a leader and a laggard in terms of how they integrate water scarcity as a business risk. For that purpose, each company was ranked against two key variables that define water risk exposure:
1. Vulnerability: a company’s reliance on water resources (industry-specific) and its exposure to water scarcity (location-specific)
2. Resilience: a company management’s response to water risks
Assigning quantitative scores to these two variables allows us to obtain an ‘Overall Water Risk Exposure’ score. This effectively enables comparison of companies’ exposure to water risks within and across industries and helps us better understand practices of leaders and laggards.