29.08.2024

One in five companies report water risks in their supply chains

Water is a critical component for every industry, whether directly or indirectly through its use for cooling, heating, transportation or agriculture.

CDP's 2023 Global Water Report reveals that one in five companies have identified water-related risks in their supply chains that could significantly impact their business.

With 3163 companies participating in the study, the report highlights the importance of proactive water management across all sectors, says esgnews.com.

What does the analysis show?

  • 623 companies have declared that a total of $77 billion is at risk due to water-related supply chain risks. This highlights the growing vulnerability of businesses as the global water crisis intensifies.
  • 50% of buyers are now engaging their suppliers on water-related issues, focusing on procurement requirements, data collection and innovation collaboration. These companies are more likely to achieve supply chain sustainability and financial benefits.
  • Companies that integrate suppliers into their risk assessments are seven times more likely to report supply chain risks, indicating the need for wider industry adoption of such practices.

Water goals

Karin Smith Ihenacho, chief governance and compliance officer at Norges Bank Investment Management, highlighted the interconnected nature of water resources and the risks posed by water scarcity, pollution and flooding.

"We assess how companies manage their water risks and opportunities and use this information to inform our company's engagement, voting, risk management and investment decisions," she said, emphasizing the need for comprehensive corporate water management.

118 companies, including Coca-Cola, L'Oréal and Kao Corporation, have set water targets within their executive compensation policies, driving meaningful action across supply chains. These financial incentives are essential to promote responsible water management and mitigate water-related risks.

Henk Ovink, executive director of the Global Commission on Water Economics, pointed to the alarming decline in fresh water availability.

"We must come together to reverse course by restoring, protecting and sustaining the global hydrological cycle," he urged, stressing the need for systemic change to ensure a sustainable water future.

2023 was declared the hottest year on record, accelerating the global water cycle and leading to more frequent and severe droughts and floods. It has disrupted industries and supply chains around the world, from the shutdown of shipping on the Rhine River to semiconductor shortages in Taiwan due to water shortages.

Tighter regulation and mandatory disclosure of water-related risks

As climate change exacerbates risks to water, the need for comprehensive management and sustainable practices has never been more critical. The Global Commission on the Economy of Water is pushing for transformative action among corporations and regulators, advocating for standardized regulations, integrated reporting and new metrics to assess water-related risks.

CDP's Global Water Report calls for stronger regulation and mandatory disclosure to ensure companies take significant steps towards water security. As the world's largest consumer of freshwater resources, the private sector must lead in addressing water challenges. Immediate and concerted efforts are needed to protect the economy and the environment from escalating water crises.

"In addition to potential business benefits, these efforts help respondents minimize their own water impacts, along with those of their suppliers, which can have positive implications for communities and ecosystems." The path to a water-secure future requires proactive engagement, collaboration and commitment to sustainable practices across all industries,” concludes Karin Smith Ihenacho.