A universe of 78 target companies was narrowed down to 54 to form the initial targets for investor engagement on water risk.
The companies were selected based on model data from PwC, reflecting water risk exposure measured in consumption of water in water stressed areas. The composition of the final target list for engagement is:
- 50 companies with the highest absolute water consumption in highly and severely water stressed regions across all crops available in the PwC ESCHER model
- 4 additional companies with more than 10m3 in water consumption per US$1000 revenue for one individual crop-country combination
The 54 companies are constituted of:
- 39 food and beverage companies
- 8 apparel companies
- 4 retailers
- 3 agricultural products companies
Thirty two of the target companies are located in the Americas, 17 in Europe and 5 in Asia-Pacific.
Engagement questions to investee companies
Drawing on both the expertise and recommendations provided by PwC and WWF, and on supply chain related questions from the CDP Water questionnaire to companies, the steering committee has developed a general framework to engage with investee companies. The committee recognises that dialogue is most beneficial for investors and companies where it is appropriately customised to the target sector or, ideally, the company. Despite this, a suite of general questions to companies are seen as a relevant starting point for dialogue, which can later be tailored depending on the company’s sector, place in the value chain, agricultural input sourcing methods (i.e. direct, trader or exchange) and/or operational location.
Awareness and relevance
Does the company know whether it is exposed to water risk through its key agricultural commodity supply chains?
- Where is the company placed in the value chain? Is it end-customer facing?
- Does the company know the geographic origin of its key commodity supplies?
- Does the company source its key commodities from contract farmers, directly from traders, or from open commodity exchanges?
- Does the company know where its commodity production is at risk of water scarcity and pollution? Does the company know what sectors/activities are prone to water constraints? Does the company know what commodity/region combinations are most critical in terms of water risk?
- How would the company rate the current and future importance of water risk for the continuity and pricing of its key commodity supplies, and the company’s growth strategy?
Water risk assessment
Does the company measure or assess water risks in its key commodity supply chains?
1. At what level and at what geographic scale does the company undertake water risk assessments? Across its entire supplier base or at specific locations only? What methods does it use?
- Ceres Aqua Gauge
- GEMI Local Water Tool
- Internal company knowledge
- Life Cycle Assessment
- Maplecroft Global Water Security Risk Index
- PwC ESCHER tool
- Regional government databases
- UNEP Vital Water Graphics
- WBCSD Global Water Tool
- WRI water scarcity definition
- WRI Aqueduct
- WWF-DEG Water Risk Filter
2. What contextual issues does the company factor in its supply chain water risk assessments? Scarcity? Conflicts? Which stakeholders does it engage in this process?
What is the material value of water risk in key commodity supply chains?
1. What percentage of key commodity spend is exposed to substantive water risk? What has been the physical, regulatory or reputational driver of that substantive water risk?
2. Has the company actually experienced any detrimental impacts due to water use in its supply chain? For example: brand damage, supply chain disruption, higher costs.
3. For water risk leaders: what opportunities present water risk-proof key commodity supply chains?
What has been the company’s response to emerging water risks and their impact on key commodity supplies?
1. What proportion of key suppliers and key commodity spend does the company require to report on their water use, risks and management? Conversely, why do you not require key suppliers to report this information?
2. Does the company have a water policy that extends to suppliers of key commodities? Does it set and enforce supplier standards and codes for sustainable water use? Who at what level in the company is responsible for the water policy and its implementation?
3. Does the company support its suppliers in reducing their water use and/or support collective efforts at improving local water stewardship? Does the company engage with other stakeholders, including water management authorities, commodity traders and exchanges, to raise and address water risk in commodity production?
4. Does the company measure if supplier responses are effective and support water stewardship strategies?
Does the company publicly disclose its water risk and management response?
1. Does the company disclose its water risk and management response to CDP Water? Does the company include water risks in its key commodity supply chains in its report?
2. Would the company support a scoring and ranking of its water risk exposure and management vis-à-vis its peers?