Cost of water risks to business five times higher than cost of taking action, says report

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The cost of water risks to business could be over five times greater than the cost of taking action now to address those risks, according to a new report by CDP, a non-profit that runs an environmental disclosure platform.

The report, titled A Wave of Change, finds that the companies disclosing through CDP’s water security questionnaire in 2020 risk losing up to a combined US$301 billion in business value if they do not address water risks, and estimate the total cost of addressing these risks at US$55 billion – less than one fifth of the amount.

Cate Lamb, Global Director of Water Security at CDP, commented on the report: “Water shortages are affecting more than 3 billion people worldwide, with the amount of freshwater available per person having plunged by a fifth over two decades.

“The water crisis must be approached with the same urgency and innovation as the COVID-19 crisis – and the business case for action is clearer than ever.

“Some of the world’s thirstiest companies are already innovating by reusing water in creative ways, developing water-smart products, and remodelling their strategies to adapt to the water crisis.

“We can turn this situation around, but we need much more transformative action. As investors pay closer attention to companies’ management of water risks, CDP is calling for all companies to develop ambitious targets to reduce water withdrawals and eliminate water pollution, including net-zero water targets. Companies must take bold action now to transform their business models.”

According to CDP, companies have made progress on water use in the last year, with nearly two thirds of companies reducing or maintaining water withdrawals due to implementation of measures to reuse and save it.

However, it is not just the volume of water available that matters. The analysis finds overall business action on water pollution is ‘severely lacking’, with just 4.4% of companies making progress against pollution reduction targets.

According to CDP, top water risks faced by companies are increased water scarcity, flooding, drought, severe weather events, and declining water quality.

The most common responses by companies across sectors and regions are adopting water efficiency, reuse, recycling or conservation measures, and developing flood emergency plans.

While those are most common, most of the money is being spent on capital expenditure, infrastructure, pollution control, new technological solutions and complying with local regulatory requirements.

The report is based on data from 2,934 companies that disclosed through CDP’s water security questionnaire in 2020, at the request of 515+ investors with US$106 trillion in assets.

This represents a 20% increase in disclosure compared to 2019, despite the challenges posed to companies by COVID-19.

Over 9,600 companies in total disclosed environmental data through CDP in 2020, including climate change, forests and water data.

The current use, storage and distribution of water and the lack of wastewater treatment contributes 10% of global greenhouse gas (GHG) emissions collectively.

The full ‘Wave of change: The role of companies in building a water-secure world’-report is available on the CDP website.