The document outlines why and how investors engage with companies on agricultural supply chain water risk.
The Principles for Responsible Investment (PRI), in partnership with WWF, has today launched a new report, Growing water risk resilience: An investor guide on agricultural supply chains, in response to the water-related risks that institutional investors are exposed to through their investee companies. This is particularly the case for companies with direct operations and supply chains that are dependent on agriculture, the world’s largest user of water.
As the impacts of climate change become more prominent and the demand for freshwater grows, investors should expect these risks to increase. Companies that are working to mitigate these risks and that demonstrate good water stewardship can create value for their shareholders. Therefore, it is important for investors to engage companies on water risks in agricultural supply chains.
The report outlines how investors are exposed to water risks that arise in companies’ supply chains. It highlights why investors should engage companies on the topic and provides a framework for them to do this using four elements:
- Foster water awareness – developing knowledge of impacts and water risks
- Promote internal and supply chain action
- Encourage collective action
- Influence governance of water
For each element, the report provides indicators that investors can use to assess companies as well as tried and tested questions to encourage food, beverage and apparel companies to mitigate water risks in agricultural supply chains. How investors can use water risk data to inform their fundamental analysis is also explored through a number of case studies.
“Agricultural supply chain water risk can be financially material for companies that rely on agricultural commodity raw materials sourced from high water risk areas,” said Kris Douma, director of investment practices and ESG engagements. “The complex nature of water means that there is no single approach to addressing water risk and impacts. Investors can use this guide to better understand the risk and encourage companies to identify their exposure, take appropriate mitigating actions and disclose on water risk in agricultural supply chains”.
Notes to editors:
The report also provides an overview of the outcomes and lessons learnt from the PRI-coordinated engagement on water risks in agricultural supply chains. Launched in 2014, the engagement brought together over 40 investors with approximately US$5.7 trillion in assets under management, and focused on engaging with 32 companies across the agricultural products, apparel and luxury goods, food and beverages and retail sectors.
Following on from this engagement, the PRI has now launched a second phase of the engagement, which will focus on the companies that scored poorly or showed some progression during phase one but require further engagement by investors. Please see here for more information about this engagement and how investors can get involved.