Feeding Ourselves Thirsty: How the Food Sector is Managing Global Water Risks
The global food sector, which uses 70% of the world’s freshwater, faces extraordinary risks from the twin challenges of water scarcity and water pollution. Rising competition, combined with aging water infrastructure, weak regulation and climate change are creating a water availability emergency that the World Economic Forum recently ranked as the world’s “top global risk.”
Many companies in the food sector behave as though the water is both cheap and limitless. Yet climate change and overuse mean that in many places we are coming to the end of low-cost, plentiful water supplies. This shift increases the risk of financial impacts to food companies, including disruption of operations, more expensive agricultural inputs and constraints on growth due to water shortages and loss of social license to operate.
In Feeding Ourselves Thirsty, Ceres takes a closer look at how the food sector is managing water risk. The report evaluates publicly available information on the water use, stewardship and policies of 37 major food sector companies in four industries: packaged food, beverage, meat and agricultural products. The report examines how water risks affect the profitability and competitive positioning of these companies using indicators and scoring drawn from the Ceres Aqua Gauge.
The report provides recommendations for how investment analysts can more effectively evaluate food sector companies on their water risk exposure and management practices. It also provides recommendations for how companies in the food sector can improve water efficiency and water quality across their operations and supply chains to reduce risks and protect water resources.
The report analyzes food sector companies on a 0-100 point scale across four categories of water risk management: 1) overall corporate governance and management of water risk; and actions to reduce water risks and impacts in their 2) direct operations, 3) manufacturing supply chain, and 4) agricultural supply chain.
Corporate Governance & Management
Although water risk was identified as a corporate governance priority by many of the companies, board oversight of water did not consistently translate into strong overall performance. Sixty percent of the 16 companies with board oversight of water risk received fewer than 35 total points.
Water risks were considered a part of major business planning activities and investment decision-making by only 30% of companies. Only Nestlé and Unilever reported using a “true cost” or shadow price for water to analyze the ROI of water-efficiency investments.
The majority of companies (23) have begun to evaluate water risks in their direct operations, but two-thirds (22) are still not evaluating water issues in their agricultural supply chains, where the majority of water risks lie.
Water quality gets less priority with only two companies – Coca-Cola and Nestlé –reporting goals to reduce wastewater discharge and improve water quality beyond compliance requirements.
Only four companies, Coca-Cola, General Mills, Molson Coors and PepsiCo, have developed collaborative watershed protection plans that are linked to regions of high water risk.
Agricultural Supply Chains
Only 16 percent (6) of companies have sustainable agriculture policies that address water. Only four companies– Coca-Cola, General Mills, Kellogg and Unilever – have time-bound goals to source the majority of their agricultural inputs from farmers using responsible water practices.
Forty-three percent (16) of companies gather data from agricultural producers on the water impacts of their farming practices. Most, however, collect data from a narrow subset of their growers, and it is unclear how the data is used to inform sourcing decisions or help farmers improve their practices.
A handful of companies – General Mills, Keurig Green Mountain, Unilever and Whitewave -- offer financial support to help growers farm more sustainably. Examples include premiums for more sustainably grown inputs and favorable financing terms or interest-free loans offered for equipment.
- Increase board oversight and understanding of material water risks.
- Conduct robust water risk analysis from manufacturing facilities down to the farm field.
- Address watershed-level risks by investing in projects that improve watershed health and by supporting public policies that ensure sustainable water management.
- Work with farmers to tackle water risks and impacts in agricultural supply chains.
- Improve disclosure to investors and other stakeholders on water risks, performance and strategies.
- Analyze food sector water risk in terms of water dependence, security and response.
- Go beyond direct operations to consider supply chain water risks.
- Engage the management of lagging companies on their water performance.
- Integrate information from water risk analysis and corporate engagement into buy/sell decisions and beyond.
- Support efforts to increase and standardize food sector reporting on water.