PRI research has shown that companies are improving their disclosure of managing water risks in agricultural supply chains, but there is still room for improvement, as summarised by the following recommendations.
1. Focus intensive engagement on laggard companies to take their performance up to the level of their leading peers
The PRI-coordinated collaborative engagement highlighted a spectrum of company performance related to managing water risks in agricultural supply chains. The companies that are not making progress throughout the engagement framework elements require attention from investors to encourage improvements.
For companies at the start of the journey that fail to show awareness of the risks, investors could discuss identifying the suppliers, commodities and geographies most vulnerable to water risk for the business. Investors could promote existing water risk tools and initiatives, such as the WRI Aqueduct and WWF Water Risk Filter, and CEO Water Mandate, to support companies in mapping risk and establishing policies and actions to manage water risk in the supply chain.
Where companies have acknowledged and mapped risk, further emphasis could be placed on interacting with their agricultural supply chain. Water issues could be integrated within existing supplier engagement programs and supplier codes of conduct to communicate the water policy, expectations and requirements. Leading companies are supporting the implementation of water policies and strategies through data requests from suppliers, capacity-building programs and sharing of good practice at the farmer level.
2. Encourage all companies to take collective action and a catchment-based approach
Once a company has identified key sourcing regions and catchments exposed to water risk in its agricultural supply chain, investors can encourage companies to understand the catchment that their suppliers are operating in and the existing efforts to address common water goals.
The presence of numerous operators within a single catchment, and using a shared water resource, may offset individual company actions to manage the resource effectively. Shared water challenges may be experienced by different stakeholders within the catchment, requiring collaboration between various water users, municipalities and NGOs. Leading companies are demonstrating catchment-based activities through engagement with local stakeholders and developing partnerships to establish common goals.
3. Continue to encourage all companies to improve disclosure on water risks in agricultural supply chains
While there has been an upward trajectory of companies disclosing information, not all companies are currently reporting on their water risks. Some companies do not adequately provide coverage of supply chain risks, instead focusing on direct operations. Others do not provide an update on the progress made in managing risks, making it difficult for investors to understand how companies are managing the risk. Investors should continue to encourage companies to report on their exposure to water risk, as well as how they are addressing it and their progress against targets to improve water risk management in their supply chain. Disclosure provides investors with data to understand the company better and compare it against its peers.
Growing water risk resilience: An investor guide on agricultural supply chains
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Recommendations for future engagement