• 1 in 5 companies report significant water risks in their supply chains, affecting billions in assets.
• Companies engaging suppliers are 7x more likely to identify and manage water risks effectively.
• Global brands are incentivizing water stewardship with financial rewards tied to supply chain performance.

Water is a critical component for every industry, whether directly or indirectly, through its use in cooling, heating, transport, or agriculture. The 2023 CDP Global Water Report reveals that 1 in 5 companies have identified water-related risks in their supply chains that could significantly impact their business. With 3,163 companies participating in the disclosure, the report underscores the importance of proactive water management across all sectors.

• 623 companies reported a combined $77 billion under threat due to water-related supply chain risks. This highlights the growing vulnerability of businesses as the global water crisis intensifies.
• 50% of buyers are now engaging their suppliers on water-related issues, focusing on procurement requirements, data collection, and innovation collaboration. These companies are more likely to achieve supply chain resilience and financial benefits.
• Companies integrating suppliers into their risk assessments are seven times more likely to report supply chain risks, indicating a need for broader industry adoption of such practices.

Carine Smith Ihenacho, Chief Governance and Compliance Officer at Norges Bank Investment Management, emphasized the interconnected nature of water resources and the risks posed by water scarcity, pollution, and flooding. “We assess how companies manage their water-related risks and opportunities, and use this information to inform our company engagement, voting, risk management, and investment decisions,” she stated, highlighting the need for comprehensive corporate water management.

118 companies, including Coca-Cola, L’Oréal, and Kao Corporation, have set water targets within their executive remuneration policies, driving meaningful action across supply chains. These financial incentives are essential for promoting responsible water stewardship and mitigating water risks.

Henk Ovink, Executive Director of the Global Commission on the Economics of Water, pointed out the alarming decline in freshwater availability. “We must come together to reverse course, restoring, protecting, and sustaining the global hydrological cycle,” he urged, stressing the need for systemic changes to secure a sustainable water future.

The year 2023 marked a pivotal moment as global temperatures breached a key benchmark, accelerating the global water cycle and resulting in more frequent and severe droughts and floods. This has disrupted industries and supply chains worldwide, from the Rhine River’s shipping shutdowns to semiconductor shortages in Taiwan due to water scarcity.

As climate change exacerbates water risks, the need for comprehensive governance and sustainable practices has never been more critical. The Global Commission for the Economics of Water is pushing for transformative actions among corporations and regulators, advocating for standardized regulations, integrated reporting, and new metrics to assess water-related risks.

Related Article: Corporates with Climate-Responsible Boards 4.8x More Likely to Achieve 1.5°C Transition with Scope 3 Targets: CDP, BCG Report

The CDP Global Water Report calls for stronger regulation and mandatory disclosure to ensure companies take significant steps toward water security. As the largest global user of freshwater resources, the private sector must lead in addressing water-related challenges. Immediate and concerted efforts are necessary to protect both the economy and the environment from escalating water crises.

As Carine Smith Ihenacho concluded, “Beyond possible business benefits, these efforts help enable respondents to minimize their own water impacts, along with those of their suppliers, which can have positive consequences for communities and ecosystems.” The path to a water-secure future demands proactive engagement, collaboration, and a commitment to sustainable practices across all industries.