Supply Chain

CDP:
Water Now a Major Risk for World’s Supply Chains

With $77B under threat due to water risk in supply chains, 50% of large corporate buyers now engage suppliers on water issues; but only 14% financially incentivize senior leaders to act on water.

Published 9 months ago | About a 4 minute read

Image: Nav Photography

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.”

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.”