Companies take $14bn hit from water problems in 2016, CDP finds

By Peter Cripps

The value of water-related financial impacts borne by companies soared to $14 billion last year, up from $2.6 billion the previous year.

The huge increase, which was revealed by CDP's annual report into corporate water disclosure, was partly caused by a one-off $9.7 billion provision to address groundwater pollution by TepCo, the company behind the disaster-struck Fukushima nuclear power plant in Japan.

But even when this immense provision is removed from the figures, the report still suggests significant growth in the value of water-related financial impacts reported by companies.

The growth is partly caused by an increase in the number of companies responding to the survey. The CDP, which was previously known as the Carbon Disclosure Project and is backed by investors with $67 trillion in assets, said 48% of the 1,252 companies to which it sent questionnaires responded. This compares to a 38% response rate the previous year.

But the figures also suggest that "companies are becoming more aware that water can seriously impact the bottom line," said the report's authors.

More than a quarter of companies reported detrimental impacts to their business caused by water over the reporting period. The energy sector was particularly exposed, with 47% of respondents having paid fines or penalties.

The ways in which water can impact a company's profitability are numerous, and could include rising costs of procuring water, or the growing costs of meeting tightening pollution standards. The examples provided in the report include:

• Canadian firm Suncor Energy expects to spend $165 million on research and development over the next few years to help it deal with tightening water quality regulations for effluents from its refineries.
• South African miner Gold Fields Limited reported a $92 million hit from the capital and operating costs of a diesel-fired power plant to compensate for the declining availability of power from Ghana's fleet of hydropower plants.
• Anglo American Platinum Limited said it has spent $5.8 million upgrading a sewage plant near a mine in South Africa to help mitigate risks to the local water supply.
• General Motors said drought in Brazil pushed up its water costs by $2.1 million in 2015, at the same time as the reducing availability of hydropower pushed up its electricity costs by $5.9 million.
• Aerospace and defence firm United Technologies Corporation invested $1.7 million in water-saving infrastructure across its six Southern California sites, where it expects water constraints will be "a permanent condition".
• Diageo disclosed US$2.4 million in conservation measures at one plant, where it saw the average cost of liquid production more than double because of Brazil's drought.

The costs caused by water are expected to increase. Companies said they expect more than half of the 4,416 water risks they have identified to materialise within the next six years.

On the bright side, the number of companies that made the CDP's A List for water rose from eight when the first list was launched last year, to 24 this year. (See box)

The CDP also believes that the Paris climate summit will put further pressure on companies to safeguard their water supply. Some 53% of respondents told the CDP that better water management is helping them reduce their greenhouse gas emissions, "showing that water can potentially make or break the low-carbon transition".