Increasingly I hear the question, “why does water matter to an investor and the companies they invest in?” In an effort to answer this question, I’d like to share with you a variety of news and data points that will hopefully help provide some context to the increased acknowledgement of water as a potential risk or opportunity.
Firstly, I’d like to highlight a report that has just been published called “Water and The Future of the Canadian Economy”. As highlighted by the authors, the reports goal is to stimulate and clarify conversations around the critical issues between water and our economy.
“Managing the appropriate use, long-term availability, and the equitable distribution of water is emerging as a major political and economic theme. Given the complex interaction between social, economic and environmental factors underlying water issues, scarcity is more often caused by nature of demand and/or the inappropriate allocation of water, rather than by the total availability alone. This suggests that water scarcity is therefore more akin to a governance failure than a pure resource crisis, implying that such a crisis can be resolved through better management, stronger governance and smarter financial investiture.”
The report then goes on to describe how water is an essential part of the Canadian economy whether used for generating electricity, raising crops, developing the oil sands, producing forest products or manufacturing consumer goods. With such, risk related to water is being and will be felt by government, industry, business and investors. Certain industries, such as the food, beverage, and water-intensive manufacturing, face direct risks. Others such as the financial services sector will be affected more indirectly.
Some interesting facts from the report are as follows:
- $7.5 to $23 B – Water’s measurable contribution to the Canadian economy annually
- $18.2 Billion – the estimated cumulative drop in GDP from six major Canadian droughts between 1984 – 2002
- Approximately 50% – the share of homeowner claims related to water damage (from infrastructure, extreme weather, appliance failure, etc.) overtaking fire as the leading cause of losses.
- 〉US$1 Trillion – value that the global water industry is projected to reach by 2020 – an industry already valued at US$400 billion annually today
- 9% – Canada’s approximate share of the world’s renewable water supply
- 4000 – the number of municipal water treatment plants that treat drinking water taken from lakes, rivers and groundwater sources in Canada
- 20% – the percentage of all municipal drinking water lost to leaks
- 19 years – the average age of cleantech companies in Quebec (Canada’s national average is 14 years) which in addition to having a mature cleantech industry is home to more water companies than any other province.
- 15th out of 16 – Canada’s ranking among 16 peer countries according to the Conference Board of Canada’s study which shows that Canada’s water consumption is more than double its peer average.
Another interesting point to consider is what is being referred to as the “energy-water nexus”. This is being defined as the trade-off between water and energy in business decisions. This issue has been raised in the recent Carbon Disclosure Project Water Disclosure Project. In its most recent report, 72% of the corporate respondents have identified the links and tradeoffs that must be managed between energy and water.
This inaugural report on water, which had 175 global companies reporting, highlights that companies too are increasingly aware of the competitive risks and opportunities that are confronting them with respect to water issues. It notes that 67% of respondents said that responsibility for water-related issues is at the Board or Executive Committee level. Another interesting point is that the response rate to the survey was quite varied between sectors and geographies. All firms in the the chemicals industry responded, against just 29% in the Oil and Gas, Construction and Real Estate sectors. Ironically, on a geographical basis, we had 7 Canadian companies respond and none of them have any efficiency or quality targets in place.
Another key point to highlight for investors and companies is that Bloomberg will be launching a water data and analysis service focused on water in early 2011. This will mean that there will be additional information made available for investors. For corporations, this points to the need to start to put some focus and resources into this sector of the market. As well, be aware that this information that will be made available to your investors who will be able to use it to compare with your peers. This will all be in addition to the current Environmental, Social and Governance (ESG) data that Bloomberg already provides.
Finally, just last month the Canadian Securities Administrators published Staff Notice 51 – 333 Environmental Reporting Guidance for reporting issuers. This move comes after consultation with investors, issuers and experts, and its goal is to assist issuers in assessing which information must be disclosed on material environmental matters, such as risks related to weather patterns or environmental legislation. According to the notice,
“environmental matters comprise a broad range of issues, including air, land, water and waste. These matters can affect issuers in several ways, including interrupting operations, resulting in material unplanned costs, providing new business opportunities, and potentially affecting reputation, capital expenditures, and a license to operate”.
These are only guidelines. However, it does provide increased clarity for issuers as to what needed to be considered material in their filing — notice that water is one of these elements.
So as a summary, it’s apparent that there are many issues and elements that need to be considered by both corporations and investors as they continue to look at the environmental risks and opportunities. As we continue to develop the sector of sustainability and sustainable investing, these issues will continue to be under increased scrutiny. Will you be ready?
Water and the Future of Canadian Economy: http://www.watersummit.ca/?q=water-report/report/download-form
Carbon Disclosure Water Project: https://www.cdproject.net/en-US/Pages/HomePage.aspx
Canadian Securities Administrators Staff Notice 51-333: www.osc.gov.on.ca/…/Securities…/csa_20101027_51-333_environmental-reporting.pdf