Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking
Despite growing climate-related risks of water
scarcity, extreme weather, drought and flooding, many water-intensive industries
do not provide sufficient data on overall water use and financially material
Overall corporate disclosures of water-related risks have
increased since 2009, but most reporting remains weak and inconsistent
according to Clearing the Waters: A Review of Corporate Water Risk
Disclosure in SEC Filings, a new report issued today by Ceres.
Boston, MA & RIO DE JANEIRO Jun 18, 2012
Overall corporate disclosures of water-related risks
have increased since 2009, but most reporting remains weak and inconsistent
Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC
Filings, a new report issued today by Ceres.
Since 2010, the Securities and Exchange Commission has
required companies to disclose financially material risks from climate
change to their investors.
These risks include “significant physical effects
of climate change, such as effects on the severity of weather (for example,
floods or hurricanes), sea levels, the arability of farmland, and water
availability and quality.”
In light of this guidance, Clearing the Waters
analyzes changes in water risk disclosure by more than 80 companies between
2009 and 2011, finding that though reporting has risen, it is lacking
especially in regard to data on financial impacts, quantitative water
metrics and potential supply chain risks.
The report covers water use in
eight water intensive sectors: beverage, chemicals, electric power, food,
homebuilding, mining, oil & gas and semiconductors.
Brooke Barton, senior manager for Ceres’ water
program, presented the results of the report yesterday in the “Emerging Best
Practice in Corporate Water Disclosure” session at the Rio+20 Corporate
Sustainability Forum in Brazil, where water issues are a critical focus of
As a result of the increasing impacts of climate
change and economic and population growth, many regions of the world are on
course to suffer major fresh water deficits in the next 20 years.
studies suggest the world may face a
40 percent global water shortfall by 2030. Drought and flood cycles have
also led to billions of dollars in losses for corporations worldwide.
Drought in China in the spring of 2012 left 3.5 million people with limited
or no access to drinking water and cost the affected provinces an estimated
Flooding in Thailand in November 2011 cost the semiconductor
industry an estimated $15-20 billion.
The trend continues in the United States.
In early June,
“obscene” amounts of rain inundated the Florida panhandle and coastal
Alabama, resulting in more than two feet of precipitation and at least $20
million in flood damage. The region had previously been classified as in
severe or extreme drought, increasing in turn the severity of the flood.
Florida officials recognize that this cycle is damaging to local industry
and have called for increased disclosure of risks.
“Corporations have increasingly acknowledged the
importance of water, and its stewardship, as a growing business risk with
direct impact on their operations,” said Michael P. McCauley, Senior
Officer, Investment Programs & Governance at the Florida State Board of
“Because efficient companies can gain an economic advantage
by prudently managing their use of water, many investors support clear
disclosures surrounding water use and management. As a result, corporate
water use has become a more significant corporate governance factor.”
Clearing the Waters expands upon research
Murky Waters: Corporate Reporting on Water Risk in 2010.
findings of the report include:
- Significantly more companies are disclosing
exposure to water risk, with a focus on physical risk: 87 percent of
companies now report physical risk exposure versus 76 percent in 2009,
with the biggest increases coming from the oil and gas sector.
- More companies are making the connection to
climate change: In 2009, only eight of the 82 companies assessed (10
percent) disclosed that climate change posed growing physical risks in
the form of water scarcity, flooding or quality issues to their
operations and supply chains. In 2011, that number jumped to 22 (27
- There is a continued lack of quantitative data
and performance targets: Despite improvements in overall disclosure,
data on company water use and the financial impacts of water-related
risks remain infrequent in financial filings.
- There is growing, but still limited, disclosure
on water management systems and performance.
“Most companies recognize the need to disclose water risk, but so far the
information they are providing lacks specificity and the hard numbers their
shareholders require to invest responsibly,” said Mindy S. Lubber, president
of Ceres, which published the report.
“Water issues are one of the
most immediate and deeply felt impacts of climate change across the world,
and leaders at Rio+20 are well aware of that reality.
Whether through water
scarcity, extreme weather or loss of property to floods, corporations and
their suppliers across the globe are exposed to water risks and can do more
to avoid them.
Disclosure is the first step, and it must be followed quickly
In light of these risks, the report recommends that companies:
- Undertake ongoing and more robust analysis of potential water-related risks
- Augment qualitative disclosure with more quantitative data in SEC filings
- Ensure compliance with the SEC’s guidance on climate change disclosure
- Provide investors with information on how they are mitigating water risks
Companies seeking to develop more comprehensive management responses to
water risk should see the 2011 Ceres report,
Ceres Aqua Gauge: A Framework for 21st Century Water Risk Management.
Report Update: The June 2012 Ceres report,
Clearing the Waters: A Review of Corporate Water Risk Disclosure in
SEC Filings, analyzed changes in water risk disclosure by more
than 80 companies between 2009 and 2011, covering eight
water-intensive sectors: beverages, chemicals, electric power, food,
homebuilding, mining, oil and gas, and semiconductors.
Since the release of this report, Ceres has added sector-by-sector
analyses for each of the eight sectors.
These new sections provide a
detailed snapshot of water-related physical, regulatory,
reputational, and litigation risk disclosure in SEC filings.
Additionally, the analyses highlight examples of water management
responses that were also disclosed in SEC filings.
includes examples of what these disclosures look like as well as
analysis of trends and changes since 2009.
Download the newly updated report here:
Clearing the Waters: A Review of Corporate Water Risk Disclosure in
Ceres is an advocate for sustainability leadership.
Ceres mobilizes a powerful coalition of investors, companies and public
interest groups to accelerate and expand the adoption of sustainable
business practices and solutions to build a healthy global economy.
also directs the Investor Network on Climate Risk (INCR), a network of 100
institutional investors with collective assets totaling more than $10