Mining companies with water strategies perform better, says report

Metals and mining companies that are taking action to manage water strategically are proving better financial performers, says investor analysis from CDP and Eurizon Capital.

Metals & mining: a sector under water pressure calls for a reassessment of current valuation models for the companies in the industry.

Over 500 investors representing US$57 trillion requested 57 of the largest metals and mining companies in the Global 500 and other water-stressed markets disclose their water data through CDP. However, the report is based on information provided by the 36 businesses that responded. It finds that companies that report on and manage water risk generate superior financial returns.

The report details the material risks posed to the sector by water and shows how poor water stewardship can lead to increased capital expenditure and operating costs, lower revenues, decreased shareholder value and disruption or ultimately an end to business operations.

The report found that of the 36 metals and mining companies that disclosed water data – representing US$773bn in market capitalization - all bar one identify substantive water-related risks could reduce profits. It also highlights the fact that the majority (64%) of businesses have already been badly hit by water-related issues in the past five years, with flooding the most commonly cited occurrence. More than one third (39%) are now experiencing increased costs as a result of negative water impacts. American aluminium producer Alcoa, for example, lost US$130m (or 6.5% of EBITDA) in 2011 due to flooding damage.

Gianluca Manca, head of sustainability at Eurizon Capital, commented: “Smart investors and companies know how damaging inaction can be. It is critical for metals and mining companies to integrate water in their current and future business strategies in order to develop more resilient business models that offer long lasting investment cases.”

James Hulse, head of CDP’s investor initiatives added: “With investors’ attention sharply focused on water risks and seeking guidance for engagement, it is of great concern that nearly one third of the metals and mining companies targeted failed to provide information."