Institutional Investors Seek Disclosure of Water Risks
In a March 2008 report entitled, “Watching Water: A guide to evaluating corporate risks in a thirsty world,” JP Morgan economist Marc Levinson warned that the risks faced by global corporations from the increasing scarcity of fresh water weren’t being adequately disclosed to investors. He went on to provide a framework for evaluating these risks and predicted that companies would come under increasing pressure to provide detailed disclosure of their water‐related risks, including potential changes in supply or treatment costs, regulations, and costs arising from supply chain disruptions.
In February of this year, another landmark report entitled, “Water Scarcity & Climate Change: Growing Risks for Business and Investors” was published by The Pacific Institute and Ceres, whose Investor Network on Climate Risk comprises more than 75 institutional investors and financial firms from the U.S. and Europe managing over $7 trillion in assets. This report made clear that companies treating pressing water risks as a key strategic challenge would better position themselves for the future while those that continued to ignore these challenges would put their continue success in jeopardy.
Then, in July, The Interfaith Center on Corporate Responsibility issued a report aimed at investors in water utilities, “Liquid Assets: Responsible Investment in Water Services,” in which the organization called on the investment community to assist in better allocating capital to those enterprises most capable of meeting the extraordinary water challenges the world faces.
Anne Stausboll, chief executive officer of the California Public Employees' Retirement System, the largest public pension fund in the United States with approximately $170 billion in assets, pointed out in the Ceres report, "As a global investor, we must be mindful of water‐related risks and how climate change will likely exacerbate many of those risks.”
Other large investors agree. According to the Financial Times, The Norwegian government pension fund, the world’s second largest sovereign wealth fund, which holds shares in over 1100 companies, is adding sustainable water management to the list of risk factors the fund’s manager, Norges Bank Investment Management, must evaluate in making investment decisions.
Executives Respond
The growing chorus of large investors demanding better water risk disclosure is not lost on corporate executives. Many leading companies already evaluate their “water footprint”, or the direct and indirect use of water supporting their operations. Most have found that in doing so, they have been able to identify simple solutions to help them reduce their water usage and the associated risk to operations from increasingly tight water supplies.
Coffee retailer Starbucks, for example, slashed the daily waste of 6 million gallons of water by turning off faucets that had been running continuously in utensil‐washing sinks. Similarly, Wal‐Mart was able to cut water usage by 30% across 70 locations in the Southeast region by retrofitting stores with high‐efficiency toilets.
These early successes have encouraged many companies to take things a step further and start analyzing how advanced water management strategies might give them an edge in the marketplace.
“Historically, strategic water management hasn’t been a major issue for most companies in the US because supplies have been inexpensive and competitive pressures low. But those days are coming to an end,” notes Laura Shenkar, Principal of The Artemis Project, a consultancy focused on helping corporations address their water risk issues with concrete strategies and innovative technologies. “Businesses that do not develop a water strategy increasingly risk having their more visionary competitors turn water scarcity into a sustainable competitive advantage.”
Corporations Leverage Technology to Increase Water Independence
In the pursuit of a long‐term competitive edge, forward‐thinking companies are increasingly looking for ways to reduce or entirely eliminate their dependence on municipal water supplies. Many are turning to emerging technologies to help them get the job done, including smart irrigation, advanced cooling towers, high‐efficiency filtration, on‐site recycling and water capture systems.
Frito‐Lay, for example, uses a combination of onsite wells, rainwater capture and recycling to implement manufacturing processes that are nearly water independent, enabling continuous operations in the face of severe storms, pipe breakages or diminished water supplies from local utilities. "As an agro‐based business, we realized adirector of environmental sustainability.
Fortunately, reducing water use offers a strong business case. Halvorsen estimates that Frito‐Lay would have spent $60 million more in 2008 on energy and water use if it hadn't implemented these programs.
Companies such as Cargill, Unilever, SABMiller and Wal‐Mart are also implementing aggressive water management strategies. Through a study conducted for the company by the Artemis Project, Wal‐Mart discovered that it could reduce municipal water delivery to one store in Southern California by 80 to 90 percent through on‐site recycling. Moreover, the company found that the energy savings from this reduction in water use would be greater than if the company installed solar panels on the roof of the store.
Wal‐Mart is also expanding its use of smart irrigation technology, as are Lockheed Martin, McDonalds, AMD and Amazon, who use solutions from HydroPoint Data Systems of Northern California to help them reduce their water footprint.
Lockheed Martin adopted HydroPoint’s solution for its Silicon Valley development and manufacturing plant, as well as its nearby Advanced Technology Center. As a result, the company estimates that it is saving nearly 126 million gallons of water per year and achieving costs savings of $1 million from reduced water usage and avoidance of property damage caused by overwatering.
A number of commercial farming operations are leveraging similar technology from PureSense, a leader in smart irrigation systems for agriculture. On average, growers using the company’s technology are achieving increased yields of 20 to 40 percent, with lower operating costs, and stronger and healthier crops.
Embassy Suites, SC Johnson, Kaiser Permanente, Honeywell, Sapporo, Hilton and others are turning to advanced water cooling technologies from EnviroTower of Toronto, Canada. These companies are experiencing an average water savings of 30 percent and energy savings of 15 percent, with payback periods of 12 to 18 months.
Meanwhile, Coca‐Cola, Pepsi and Italy’s Galbani Group are turning to advanced water purification systems from Atlantium, while the Bank of America Tower, Staples Center, Hollywood Bowl and Taj Mahal deploy waterless bathroom facilities from Falcon Waterfree.
According to Ms. Shenkar, the range of water‐saving technologies large corporations deploy will only increase going forward. “There is no one‐size‐fits‐all approach to sustainable water use. Each company must evaluate which technologies make sense given its operational risk factors. Also, since water is inherently a local issue, the technologies appropriate for one site may not apply to other operations.”
Venture Investors Take Notice
Venture capital firms and other early‐stage investors are closely monitoring the growing use of emerging water technologies by large corporations and putting money to work in the area. A recent survey conducted by AlwaysOn and KPMG for the 2009 Going Green conference found that of the “CleanTech” sectors expected to receive the most capital over the next 2 years, Water tied for 3rd place with Solar, behind only Energy Storage and Energy Efficiency. Coming in behind Water were Alternative Fuels, Green Building Materials, Wind, Clean Coal and Waste Management.
“Water is mission critical to most industrial processes and due to increasing scarcity, I will be very surprised if we do not start seeing forced (water) reuse in large commercial and industrial facilities,” said John Coburn, long time water industry executive and Managing Director of XPV Capital, when asked about some of the drivers behind the increasing venture investment in corporate water technologies. Mr. Coburn continued, “Using drinking water in cooling towers, for instance, easily ranks as one of the top 10 most stupid practices in corporate water use today, but it is going to take the replacement of outdated technology to solve this problem.”
What’s Next?
Clearly, corporations are still in the early days of developing and implementing water risk management strategies. Nonetheless, these strategies are already yielding significant cost and risk reduction benefits. Beyond any public relations or brand equity value companies may derive from their sustainable water use efforts, the bottom line impact is very real.
Eric Meliton, environmental technology research analyst at Frost and Sullivan, was recently quoted as saying, “Water upgrades used to be ‘good to have’ but didn’t offer major return on investment. Now companies see water reduction projects as good investments.”
©2009 The Artemis Project