Keeping Our Economy Flowing
Ample fresh water is essential for a stable and prosperous economy. But the rising frequency of record droughts and floods, combined with growing water contamination from industry and agriculture, and inefficient management systems are creating major new challenges for generating power, producing food and supplying clean drinking water. Companies and investors have a direct interest in preventing water pollution, reducing unsustainable water use, increasing efficiency and improving infrastructure to ensure sufficient water for developed and developing economies alike.
Companies and their supply chains have major impacts on water resources. Food and fiber production represents at least three-quarters of global water use. In the United States, the electric power sector alone accounts for 41 percent of freshwater withdrawals. Businesses need to understand the impacts their operations and supply chains have on water supplies and put management systems in place to reduce pollution and improve water efficiency. Water utilities need to increase their transparency and up their investments in water conservation and green infrastructure.
Increasingly, investors are boosting scrutiny of water risks in their portfolios and calling for better transparency and stronger action from companies and water providers to mitigate these risks.
Ceres is working with companies, investors, water providers, policymakers, environmental organizations and other stakeholders to improve water management and increase reporting on water issues that pose risks to businesses, communities and the environment. An integral part of our work is improving how capital market players – including investors, companies, utilities, credit rating agencies and regulators such as the SEC – are factoring these risks into their own governance systems and strategies.
Advancing Corporate Water Stewardship
Ceres is working with companies and investors to advance their management of water risk. In consultation with a range of investor, corporate and NGO stakeholders, Ceres has developed a first-of-its-kind tool – the TM – to support corporate action on water stewardship and enhance investor analysis of corporate water risk. The Aqua Gauge, which is backed by investors managing over $2 trillion in assets, provides a benchmark for corporate water performance and enables investors to assess, scorecard and compare companies on their management of water risk. It also provides companies with a clear roadmap for developing comprehensive water strategies, and is being used by a range of companies, from Coca-Cola to Cummins, Inc., to strengthen their water management approach.
Improving Corporate Disclosure on Water Risk
Corporate disclosure of water risk is a priority for investors and a critical foundation for effective water management. For that reason, in 2010, Ceres released the first comprehensive ranking of the water disclosure practices of 100 publicly-traded companies across eight sectors. The report, Murky Waters: Corporate Reporting on Water Risk, highlights key water risks facing these industries, documents gaps as well as best practices in water risk reporting, and lays out a set of recommendations for companies and investors.
In 2012 Ceres updated this analysis with Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings, which found that though overall corporate disclosures of water-related risks in financial filings had increased since 2010, much reporting remains weak and inconsistent especially in regard to data on overall water use, financial exposure and potential supply chain risks.
Addressing Water Risks in Shale Energy
Shale energy extraction is a thirsty business. The U.S. Energy Information Administration predicts that shale gas production will rise from 23% if U.S. natural gas production in 2010 to 49% in 2035 and that tight oil production will rise from just over 1.2 million barrels per day in 2011 to 2.8 million by 2020. Ceres is working to inform investors about water-related risks facing the sector and in May 2013 published Hydraulic Fracturing & Water Stress: Growing Competitive Pressures for Water.
This study maps over 25,000 hydraulically-fractured shale wells against measures of water stress in the United States, showing that a significant portion of this activity is happening in regions that are already facing stiff competition for water, most prominently Texas and Colorado. It identifies that industry efforts underway, such as expanded use of recycled water and non-freshwater resources, need to be dramatically scaled up along with better water management planning.
This report is part of a larger, more comprehensive study Ceres is undertaking to analyze water risks across the entire hydraulic fracturing lifecycle – from water sourcing to final treatment and disposal of wastewater – across different regional basins in North America.
Financing Sustainable Water Infrastructure
Water utilities provide critical services that support the economic vitality of our cities. They also face growing risks related to more vulnerable water supplies, declining household demand and huge financing costs in tapping new sources. In 2010, Ceres and Water Asset Management released The Ripple Effect: Water Risk in the Municipal Bond Market, a first-of-its-kind study examining the hidden water risks facing municipal water systems, bond investors and credit rating agencies. The study illustrated that weak conservation measures, under-pricing of water, and less than robust analysis by credit rating agencies can lead to hidden risks for bond investors.
In late 2012, Ceres published a follow-up report, Water Ripples: Expanding Risks for U.S. Water Providers, which identifies growing water supply and demand risks for water utilities and recommends that utilities move carefully before embarking on major pipelines, reservoirs and other new infrastructure that can create financial risks for investors and utility customers alike.
Innovative financing and pricing flexibility are key to preparing U.S. water systems to handle growing environmental challenges. In January 2012, Ceres, in collaboration with the Johnson Foundation and American Rivers, issued Charting New Waters: Financing Sustainable Water Infrastructure, a report that recommends bold new approaches for financing and operating public water systems, including green infrastructure, closed-loop systems and water recycling; flexible water pricing and revenue structures that distinguish between drinking water and various other types of water; and full-cost accounting of water.
Ceres is now working with our investor members to encourage additional disclosure by water and wastewater utilities of operational and sustainability data needed for more robust credit analysis. In April 2013, Ceres released its Disclosure Framework for Water & Sewer Enterprises, created through outreach to stakeholders on the buy- and sell-sides of the market, including large water and wastewater systems and more than a dozen institutional investors with $40 billion in assets under management. The framework covers six key areas of disclosure including supply security, demand management, asset management, water quality, energy use and generation and rates.
Ceres holds regular stakeholder engagements focused on water risk with companies such as PepsiCo, Suncor and Levi Strauss & Co. These meetings, facilitated by Ceres, bring together corporate executives, investors and public interest groups to increase corporate transparency and action on water risk – including performance goals for increasing water efficiencies across operations, product lines and supply chains.
Many of Ceres’ investor members are engaging companies, through dialogue and shareholder resolutions, to encourage stronger corporate action on water risks. Investors have focused particular attention on the oil & gas, electric power, apparel, and food and beverage sectors and are asking companies for more disclosure on water risk exposure, water management practices and performance.
Policy and Regulatory Action
Ceres is challenging rating agencies and public utilities to more accurately assess and address water risk based on more realistic models of future water availability. By asking new questions and raising new concerns about future water availability, Ceres is encouraging stronger conservation measures, new technologies and infrastructure solutions, and better reuse and recycling systems to reduce water use and increase efficiencies of water systems.
Read articles, download reports and listen to podcasts about water risk listed on the right-hand side of this page.
For more information
To learn more about water scarcity and other water risks, or to get involved in Ceres's work, contact Brooke Barton, Director, Water Program.