Corporate disclosures of water-related climate change risks in financial filings have increased since 2009, a Ceres report found. The report specifically found that disclosures of water risks increased between 2009 and 2011. The biggest change occurred in the percentage of companies disclosing water-related physical risks, which increased from 76 percent to 87 percent. In 2009, only eight of the 82 companies surveyed (10 percent) disclosed that climate change posed water related risks. In 2011, there were 22 companies (27 percent).
The report compared the water risk disclosure of the 82 companies analyzed as part of a 2010 Ceres report, and looks at disclosure since the SEC issued guidance in 2010 on how companies should provide climate change risk information to investors. The report covers water use in eight water intensive sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil and gas and semiconductors.
Drought in Texas and flooding in Thailand illustrate water risks
Recent events of the last few years illustrate the importance of disclosing water-related risks, as the report points out. Texas, the leading beef producer and third largest producer of all agricultural products in the U.S., suffered from a drought last year which caused $7.62 in damages to crops and livestock. As a result, nationwide price increases occurred. The state’s cotton producers suffered $2.2 billion in losses which caused a shortage of cotton supplies for apparel companies. By the end of last year, 98 percent of the state still faced drought conditions.
Another example cited by the report occurred in Asia. Flooding in Thailand in the fall of 2011 disrupted the country’s manufacturing sector, causing 27.7 percent fewer hard drives to be shipped. Honda expected the flooding to decrease sales in Thailand by 30 percent. In December, Prime Minister Yingluck Shinawatra estimated flood-related damages at $42 billion.
The sectors that stand out
There are a few sectors which stand out, including the oil and gas and chemical sectors. The percentage of companies in oil and gas and chemical sectors reporting exposure to physical water risks increased 31 percent and 45 percent respectively. All 13 oil and gas companies analyzed disclose information on water-related management systems.
The food and beverage sectors stand out, as well. The number of food companies reporting exposure to water-related regulatory risks increased 46 percent. In 2009, Coca-Cola was the only beverage company to disclose management responses to water-related risks, but in 2011 all six beverage companies reviewed disclosed management responses.
Although disclosure of water-related risks have increased, it is still limited. The report cites two specific areas which are lacking: quantitative data and performance targets in financial filings, and discussion of supply chain risk. The report gives four recommendations for increasing and improving disclosures:
- Undertake more rigorous analysis of potential water related risks
- Augment qualitative disclosure with relevant quantitative data
- Ensure compliance with the SEC’s guidance on climate change disclosure
- Provide investors with risk management information
“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. “Disclosure is the first step, and it must be followed quickly by action.”
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