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Boards not taking water risks seriously despite growing short-term risk: CDP Water Report 2011

Warning comes on day Dell announces profits warning because of Thai floods.

The boards of major companies are not taking the issue of water risks such as flooding or scarcity as seriously as they should be despite growing evidence of near-term business impacts, according to the biggest global corporate survey of the issue. Just over half (57%) of the 190 companies responding to this year’s CDP Water Disclosure survey said they had director oversight of water risks or policies, less than the number of companies (59%) reporting exposure to potential related financial problems. The CDP Water findings come as Dell, the computer multinational, today warned that its revenues could be hit by a worldwide shortage of hard drives caused by the flooding in Thailand, a major production hub for many global firms. More than a third of companies responding to the CDP survey (38%) said they had already experienced water-related business impacts, such as disruption to operations from severe weather events and water shortages. And a majority said water risks were potential near-term issues likely to happen between now and 2016. One company reported that it had already taken a water-related financial hit of US$200m. Significantly, energy companies reported a high level of water risk (72%), yet had the lowest levels of board oversight (36%). The report said major economies had been damaged by water-related catastrophes this year. Recent flooding in Thailand and Cambodia has reportedly wiped more than 1.5% off Thailand’s GDP. Droughts in Australia and Texas have exposed the flip side of water stress; the 12-month drought in Texas is estimated to have cost over $5.2bn in agriculturallosses. Nonetheless, 38% of companies said they were unaware of water risk exposure in their supply chains. In the consumer discretionary sector industries such as retailers, hotels, resorts, and automobile manufacturers that are particularly exposed to supply chain risk that figure was higher at 41%. However, the survey revealed that two thirds of respondents (63%) don’t just see water issues as risk, but also as commercial opportunities, most of which (79%) are near term. The most commonly identified opportunities were cost reductions from water efficiency or revenue from new water-related products or services. Paul Simpson, chief executive officer at CDP says: “Some of the largest multinational companies have experienced the detrimental effects that water can have on their bottom line. The findings released today illustrate the very near-term nature of water-related impacts. We need to see more companies understand that water is a critical issue, requiring greater board-level attention than it currently receives. Those corporations that navigate the challenges effectively will be able to profit from the significant opportunities that result from a robust water strategy.” The second annual CDP Water Disclosure Global Report is based on a questionnaire sent to 315 companies on the Global 500 index that are identified as operating in the most water-stressed locations or industry sectors. This year, 190 (60%) companies responded, up 10% from 2010. CDP Water Disclosure collects data annually on behalf of 354 investors representing US$43 trillion in assets.
Link to report