Environmental data body CDP – which works with 767 institutional investors with $92trn (€69.3trn) in assets – is piloting a new scoring system to help companies benchmark their progress towards water stewardship.
“Right now we are piloting the new scoring methodology with 160 companies,” says Frances Way, Co-Chief Operating Officer of programs at the London-based not-for-profit group. “These companies are the largest by market capitalization and have been receiving our water questionnaire since 2010.”
Although the results will not be made public, the CDP hopes to learn a lot from both the pilot and subsequent conversations with companies about their results in September, Way says. She acknowledges that scoring and grading may not always provide perfect results but can serve a “useful purpose”.
It comes as water is emerging as a key issue for investors. Just this week Norges Bank Investment Management announced a research project to look at the link between mining companies’ profitability and environmental, social and governance (ESG) risk factors. Its first phase will see the creation of a database of information including water management as well as deforestation, land rights, and social and regulatory conditions. And California is planning a $6bn water bond amid serious drought conditions in the state.The CDP scoring process will evaluate how comprehensive each company’s risk assessments, policies, strategies and plans are; whether water risk and management is on the board agenda; and if it is factored into business planning. It’s hoped it will help investors understand how mature a company is in its strategic response to water challenges – though it won’t try to score the risk exposure or the effectiveness of a specific company’s risk mitigation strategy.
“The scores themselves are really just a means to an end,” Way says in a blog post. “Our aim is to drive better disclosure and corporate water stewardship that effectively contributes to the conservation of water resources.”
The CDP sought water-related information from more than 1,000 companies last year and almost 600 engaged with it to enable effective measurement and management of water-related issues, a 59% increase over 2012.
The NGO’s 2013 water report found that substantive water-related risks are becoming more immediate, though respondents’ water stewardship activities were “notably lacking”. “Investors must encourage a step change within companies to address water-related risks and associated impacts to financial performance,” it said at the time.
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