Water disclosure to grow faster than carbon reporting – HSBC
24 January 2013The reporting of water management by companies is set to grow faster than carbon disclosure, according to analysts at HSBC, who warn that China and India are most at risk as the resource comes under increasing pressure.
The rising number of droughts, floods and storms is making water management a key issue for long-term investors, and the growing thirst of a booming global population will accentuate the strain, according to the paper by Zoe Knight, a London-based climate change strategist at the banking giant.
But the quality of companies’ water reporting is currently patchy. Of the 9,909 companies in Bloomberg’s BESGPRO Index – which lists companies that have disclosed environmental, social and governance (ESG) indicators – only 1,651 reported water data points.
“We believe that the breadth and depth of water reporting and management will potentially improve faster than the carbon equivalent,” the report says.
It points out that the Carbon Disclosure Project’s (CDP) water disclosure initiative, which polls some of the world’s biggest companies, has seen a response rate of 60%, compared to an equivalent rate of 50% for carbon dioxide emissions at the same stage in its development.
“Corporate disclosure is improving, but remains incomplete and inconsistent, partly because companies are nervous about disclosing information that could be used to a competitive advantage,” it adds. “As a result, equity valuations generally do not price-in exposure to water risk.”
It suggests that one way around the problem would be for companies to disclose on a non-public basis through the CDP, so that only paying signatories could access the data.
The report finds that China and India are the most water-vulnerable of the G20 economies – between them, the two countries have seven out of the 10 most populated river basins in the world.
India’s most recent five-year plan estimates that water demand in 2031 could be 50% greater than today. And nearly half of China’s GDP is earned in provinces where water is scarce.
The report finds that only six of the 161 listed utilities in China and India had historic water data disclosed on Bloomberg.
In terms of which sectors will be most affected by water risk, the report identifies power companies operating inland – without access to seawater – and the food production sector as “exposed”, while mining has the potential to be heavily impacted.
Utilities are the biggest corporate users of water, accounting for three quarters of water withdrawal. But food production faces the largest indirect risk, it says.
From Environmental Finance