Scarce water resources may, like climate change, harm companies' operations and profitability. Yet efforts to manage water-related risks are lagging behind the steps taken to tackle climate change, findings from the CDP Water Disclosure global report 2011 show. As an investor in about 8,000 companies worldwide, many of which rely on water, Norges Bank Investment Management (NBIM) expects businesses to step up efforts in this area.
While climate change is a global phenomenon requiring international action and regulation, water is a resource best managed locally. Companies' water risks vary considerably from location to location, reflecting differences in local watersheds, regulation and water consumption. Successful water management will take these local characteristics into account. As a result, there usually is no one-size-fits-all strategy that a company may use to manage water resources across all its operations.
NBIM expects businesses to disclose their exposure to water risks, and show to what extent they manage these risks in their operations and supply chains. We also encourage companies to report on the annual water use at each of their main operational sites, for instance by comparing usage at a site to the average flow of the river it draws water from or against the maximum water usage allowed by local regulators. Providing such information will enable companies and their stakeholders to track performance in this area over time.
Water is not an infinite resource. On the contrary, water may become an increasing cost that hurts profitability at many companies. This may, in turn, affect our investments. An assessment earlier this year of more than 400 companies in NBIM's portfolio showed that far too few provide enough information on water as a risk factor, particularly in their supply chains. How companies manage and report on these risks will become increasingly important to long-term investors such as NBIM as concern over water resources grows.
Anne Kvam is global head of ownership policy at Norges Bank Investment Management (NBIM), manager of the Norwegian Government Pension Fund Global. NBIM is a sponsor of the CDP Water Disclosure programme
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