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CEOs Urged to Act as Water Risks Drain Billions from Bottom Lines

While CEOs grapple with the threats and opportunities posed by a Trump presidency, another, potentially more important issue has been bubbling to the surface: water risk.

According to a new report, problems associated with drought, flooding, supply scarcities and pollution are expected to cost some of the world’s biggest companies a combined $14 billion this year. Many businesses, however, aren’t doing enough to protect themselves, even as climate change threatens to disrupt water security and a rising global population drives up demand and pollution risks.

The report was compiled on behalf of hundreds of large investors by not-for-profit group CDP, which asked 1,252 companies listed on the MSCI All Country World Index to provide data about their efforts to manage and govern freshwater resources. In total, 607 companies, or 48%, responded, up from 38% last year.

“Water risk can rip the rug from right under business, posing a serious threat to the bottom line,” CDP’s CEO Paul Simpson said.

“Every drop of clean, sustainable water will be essential. This is a wake-up call to companies everywhere to take water more seriously.

This year’s $14 billion cost figure jumped dramatically from 2015’s $2.6 billion. Much of the increase, however, could be attributed to the continuing travails of Tokyo Electric Power Co., which said it incurred around $10 billion of water-related costs cleaning up groundwater at the Fukushima Daiichi nuclear power plant, damaged by 2011’s tsunami.

Still, all corporate sectors—apart from consumer discretionary—saw increased financial impacts this year, with the utilities, mining and energy sectors hardest hit.

South African miner Gold Fields, for example, reported a $92 million cost associated with operating a diesel-fired power plant, which was needed due to the declining availability of Ghana’s hydro-power plants. And Canadian oil sands giant Suncor Energy said treating discharge from its refineries to meet new standards could push related R&D costs above US$165 million.

Companies outside these more heavily-exposed sectors suffered, too. GM, for example, disclosed it took an $8 million hit after drought in Brazil pushed up its water and energy costs. The U.S. auto giant responded with increased water conservation efforts and energy efficiency measures, CDP said.

Many companies, however, weren’t found to be taking such a proactive approach to managing their water use. Almost two-thirds (61%) said they monitored and measured their water use, up three percentage points from the previous year, while 83% said they had integrated water use into their business strategy. Only 15%, however, had a publicly-available, company-wide water policy in place, up from 6% last year.

Simpson said the report’s findings were particularly concerning because studies have shown around a quarter of carbon emissions reduction activities reported by companies depend on a stable water supply. “Every drop of clean, sustainable water will be essential,” Simpson said. “This is a wake-up call to companies everywhere to take water more seriously.”

About Ross Kelly

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.