Swelling Support for Water Stewardship

Through active ownership, investors can promote a more systemic approach, according to Anna Warberg, Engagement Director at the Council on Ethics for the Swedish National Pension Funds. 

Escalating water challenges are threatening economies and businesses across the globe. More than 30% of global GDP will likely be exposed to high water stress by 2050. This is exposing companies to growing operational, regulatory, and reputational risks because of how fundamentally they depend on and impact increasingly scarce and polluted water supplies.  

More companies are responding with plans and actions to mitigate these risks, and investors are playing a larger part supporting this work. This includes investors engaging with large companies on improving their water management practices through Ceres’ Valuing Water Finance Initiative. More than 100 investors representing nearly US$18 trillion in assets have joined this first-of-its-kind global effort since its launch in late 2022. 

In this article, Kirsten James, Ceres’ Senior Programme Director of Water, discusses how investors can support companies to manage water better and address key gaps in their strategies with Anna Warberg, Engagement Director at the Council on Ethics for the Swedish National Pension Funds.  

James: What aspect of the water crisis is most concerning to you as an investor? 

Warberg: Representing the Swedish National Pension Funds (AP Funds 1-4) who are long-term investors, the Council on Ethics recognises the systemic risks associated with water security – impacting both society and the environment, as well as companies in institutional portfolios. Good water quality and sufficient access to water is essential for health, sanitation, food production, power generation, and numerous other industrial processes.  

Water is also closely connected to many other global challenges and risks, such as climate change, biodiversity loss, poverty and involuntary migration. More than two billion people around the world lack access to safely managed drinking water. Meanwhile, around 10% of the global population lives in areas with high or critical water stress. Companies need to assess and mitigate business practices that may be exacerbating these challenges and financial risks. CDP has estimated that the potential financial impact of water risks to businesses is over five times higher than the cost of addressing them.

James: How important is the role of investors in improving corporate water stewardship? Do you feel investors are making sufficient progress in this effort? 

Warberg: Investors represent an important voice in improving companies’ management of water-related risks.  

Through active ownership, investors can promote a more systemic and long-term approach to water stewardship. Achieving results through engagement can take time, but our experience is that active participation in collaborative engagements can ultimately drive greater progress on corporate water stewardship.  

For example, the Council on Ethics has engaged with mining companies for several years regarding risks of tailings dam failures leading to the release of toxic wastewater into local water bodies.  

Following a major accident in Brazil in 2019, the Council on Ethics launched a project together with the Church of England Pensions Board to prevent similar accidents from re-occurring and improve practice throughout the sector. The collaboration led to the establishment of a global database of mine tailings, and contributed to initiatives such as the Global Industry Standard on Tailings Management, as well as the multi-stakeholder initiative Global Investor Commission on Mining 2030, which includes representation from several companies. 

James: How can investors who may be in the early stages of thinking about water risk begin to act?   

Warberg: A good start is to analyse the water-related risk exposure in the portfolio, with both a geographical and industry-level lens. This will help identify material risks and prioritise sectors and companies to focus on.  

It’s important to integrate a value –chain perspective in the analysis, to capture dependencies and impacts on water beyond a company’s own operations.  

One challenge in this area is that many companies have often not conducted sufficient water risk assessments and mappings of their supply chains. To overcome this, investors could include a request for this type of analysis as a specific ask in their engagement with companies.   

James: What aspects of water management do you think are most overlooked by companies?   

Warberg: Many companies’ water targets tend to focus on the company’s own water use and efficiency. While these are important KPIs, we note that water targets often lack detail on the value chain perspective, as well as on water quality. The supply chain perspective is crucial, as it often represents a significant part of a company’s water footprint. It has been estimated that for a retailer, as much as 90% of the water use in production could be traced back to the early stages of the value chain.   

Additionally, as investors, we rely on transparency in companies’ reporting of their risks and impacts and encourage those with large water footprints and dependencies to be more detailed in the disclosures related to their water stewardship strategies.    

James: What gives you hope as you reflect on your engagements with companies on water risk?      

Warberg: We have seen an increased awareness and recognition of water as a material issue, both in companies’ disclosures and in the Valuing Water Finance Initiative dialogues with companies.  

We are encouraged by many companies’ openness to discussing the topic and learning from experts and peers – important steps towards helping address the systemic impacts of the water crisis. We have also noted that some companies – particularly in the food and beverage industry – have expanded and deepened their reporting on local water risks and operations in areas with high water stress. This information provides investors with important insights into companies’ water risk.

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