Climate research provider and environmental disclosure platform CDP announced the release of A Wave of Change, its 2020 global water report. The report, based on data from 2,934 companies that disclosed through CDP’s water security questionnaire in 2020, found that the cost to companies of not addressing water risks stands to reach $301 billion in lost business value. By contrast, the report estimates the cost of addressing the risk at $55 billion.

Cate Lamb, Global Director of Water Security at CDP, said:

“Water shortages are affecting more than 3 billion people worldwide, with the amount of freshwater available per person having plunged by a fifth over two decades. The water crisis must be approached with the same urgency and innovation as the COVID-19 crisis – and the business case for action is clearer than ever.”

The top water risks faced by companies, according to CDP, are increased water scarcity, flooding, drought, severe weather events, and declining water quality. The study found that the most frequently reported responses by companies to water risks include adopting water efficiency, conservation, reuse and recycling measures, and developing flood emergency plans. Current expenditures by companies are focused on increased capex, pollution abatement and control, infrastructure investment, investments in new technology, and compliance with local regulatory requirements. While the report finds that companies are making progress in some areas on addressing water risks, action in some areas, such as water pollution is lacking.

According to CDP, investors are becoming increasingly focused on water risk issues, with over 590 investors with over US$110 trillion in assets requesting companies to disclose on water security impacts, risks and actions.

In the foreword to the CDP report, Carine Smith Ihenacho, Chief Governance and Compliance Officer at Norges Bank Investment Management, said:

“Responsible investment is a key priority for the fund as it supports the long-term economic performance of our investments, and reduces financial risks associated with the environmental and social practices of companies in our portfolio. Water scarcity and pollution can pose business risks, and the way water is managed by companies can influence their profits. But it can also affect the profits of other companies we invest in that are dependent on the same sources of water.”

Other key findings from the report include:

Progress on addressing water risks: Nearly two thirds of reporting companies reported that their withdrawals were much lower, lower, or about the same compared with 2019. In water-stressed areas, this figure reached 80%.

Pollution efforts lagging: While company efforts on water quantity are improving, water quality initiatives are lagging. Only 4.4% of companies are setting and progress against pollution reduction targets, and only 20% of the world’s wastewater is currently treated.

Transparency improving: In 2020, CDP saw a 20% increase in corporate disclosure through its water security questionnaire. The increase in responses was particularly strong in the materials, retail and transportation sectors.

Lamb added:

“Some of the world’s thirstiest companies are already innovating by reusing water in creative ways, developing water-smart products, and remodelling their strategies to adapt to the water crisis. We can turn this situation around, but we need much more transformative action. As investors pay closer attention to companies’ management of water risks, CDP is calling for all companies to develop ambitious targets to reduce water withdrawals and eliminate water pollution, including net-zero water targets. Companies must take bold action now to transform their business models.”

Click here for the full CDP report.