The water crisis threatens global supply chains like never before, according to
new research from CDP — the global non-profit that
runs the world’s environmental disclosure system.
Stewardship at the
Source
— CDP’s most-extensive-ever analysis on how companies are responding to water
security, based on record-high disclosure numbers — focuses on 3,163 large
companies with an annual revenue of more than €/US$250 million, who responded
to CDP’s annual water-security questionnaire in response to a request from
investors in 2023.
1,542 companies (50 percent) responded that they are engaging their supply
chain on water
risks
— including inserting water requirements into supplier contracts, collecting
water data, raising awareness of water issues, or collaborating on innovation.
“Supply chains are the knots which tie our global economy together. But they are
coming apart rapidly due to climate change and the reckless abandon with which
we treat the world’s finite resources,” says Dr Patricia
Calderon, CDP’s global
head of water. “The data is telling us our water supplies are becoming ever more
fragile and the financial toll is mounting up. It’s down to large companies
with the biggest water
impacts
to take immediate action — working with their suppliers to stem the tide of
water risk.”
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Pressure is growing on water to meet increased needs around the world —
especially food and energy. Global water demand is
predicted to rise by up to
30 percent by 2050, according to the United Nations — which has a direct
impact on the world’s complex and interwoven supply chains as they
struggle
to keep up.
Analysis of CDP data provides a unique insight into how some of the world’s
largest brands are grappling with water issues. One in five (623) companies
report supply chain water risks — with the
apparel,
food,
beverage
and
agriculture,
and power-generation sectors reporting most. These companies are facing supply
chain risks that could have a substantive financial or strategic impact on their
business — estimated to total US$77 billion.
According to 79 respondents, a total of US$7 billion was deemed to be at
immediate risk due to urgent water scarcity, food, regulatory and reputational
issues.
Concerningly, 894 companies (28 percent) — from sectors including manufacturing,
agriculture, and transportation — do not engage with their supply chain and have
no plans to do so in the next two years. A fifth of these companies told CDP
they felt the issue was unimportant, despite their activities having high water
impacts.
“We need a paradigm shift in the way our economic metrics, and the politics
behind them, value and govern water,” commented Henk
Ovink, executive director of the
Global Commission on the Economics of Water. “Mitigating climate change while adapting for the ever more extreme impacts,
ensuring a just energy
transition
and securing food for
all,
restoring our ecosystems, reversing biodiversity
loss;
and building inclusive, green and resilient systems. The key to make all this
happen is to view water as a global common good.”
A group of forward-thinking businesses are already working on the problem: 443
businesses (14 percent) offer their senior leaders — including the board —
incentives to improve water management across the supply chain. 118 (4 percent)
of these companies — including Coca Cola, L’Oréal and Kao Corporation —
provide direct financial incentives to their chief procurement or purchasing
officers.
The report makes a strong case for companies to take immediate action on water
issues in their supply chain and offers six key steps for companies. Each one of
these indicators follows from the next:
-
Assess supply chain risks and impacts.
-
Set global supply chain targets.
-
Incentivize executives to act.
-
Include water in supplier requirements.
-
Engage with suppliers.
-
Incentivize and support suppliers.
“The bar needs to be raised much higher if we want to build strong and effective
supply chains, free from serious water risks,” Calderon asserted. “Companies
should shift their outlook to recognizing the significant opportunities from
becoming more water resilient.”
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Sustainable Brands Staff
Published Mar 25, 2024 8am EDT / 5am PDT / 12pm GMT / 1pm CET