Business Risks

 

Water risk refers to the possibility of an entity experiencing a water-related challenge (e.g., water scarcity, water stress, flooding, infrastructure decay, drought). Many companies are exposed to water risks that can negatively affect business viability over the short or long term. Water risk for businesses specifically is also sometimes divided into two categories that shed light on the source of that risk and therefore what types of mitigation responses will be most appropriate:

  • Risk due to company operations, products, and services
  • Risk due to basin conditions

Disclosure on water risks enables audiences to better understand what the performance and conditions described in Current State reporting actually mean for the company and its stakeholders.

Content Scope Format
Basic
  • High-level assessment of risks at a portfolio level
Companywide Narrative; qualitative
Advanced(includes basic reporting)
  • Detailed assessment of risks based on extensive, location-specific analysis at the facility level
Location-specific Tabular; qualitative;
  • Value chain risks
Value chain Narrative; qualitative and quantitative

BASIC

High-level assessment of risks at a portfolio level

Basic disclosers offer a high-level overview of their companywide exposure to water risk. Such an overview is based on a general understanding of a company’s industry sector and its exposure to water risks and key information described under basic Current State guidance, namely a list of the company’s hot spots (see Context) and the extent to which the company’s water withdrawals are located in water- scarce or water-stressed locations (see Performance).

Ultimately, disclosure audiences should come away with a sense of the extent to which water-related topics are relevant for the company generally, the nature and extent of specific water risks, and where

ADVANCED

Detailed assessment of risks based on extensive, location-specific analysis at the facility level

Advanced disclosers progress to a more nuanced and detailed assessment and depiction of water risks geared at specific locations (e.g., specific facilities, basins, subbasins, aquifers, etc.) and considering a much broader range of contextual factors and how they create various types of water risk. In the case that a company has dozens (or even hundreds) of potential water-related risks, it can identify a more manageable subset of risks such as those that are most acute or that the company is exposed to broadly. Ideally, a company also describes the methods and tools it uses to assess risks.

When reporting risks, advanced disclosers identify:

  • Geographic or geopolitical area
    Advanced disclosers specify the geographic or geopolitical area to which each risk is relevant. In some cases, one type of risk may be applicable to a wide range of areas. In these cases, the company should list all relevant countries, river basins, etc.
  • Risk category and driver
    Companies categorize the risk (e.g., physical, regulatory, reputational) as well as the specific conditions driving it (e.g., water scarcity, flooding, regulatory uncertainty). A list of potential risk drivers can be found under Context. Companies can also categorize risks by source (i.e., risk due to company operations, products, and services and/or risk due to basin conditions) to provide insight into what types of response strategies are most appropriate.
  • Potential consequences for business
    Companies should provide a brief explanation of how each risk might affect production or business viability. They can do so by listing and expanding on broad types of consequences, such as:

    • Brand damage
    • Closure of operations
    • Constraint to future growth
    • Decrease in shareholder value
    • Delays in permitting
    • Higher operating costs
    • Fines and penalties
    • Litigation
    • Loss of license to operate
    • Property damage
    • Supply chain disruption
    • Transport disruption

    Where possible, companies discuss the likelihood and actual or anticipated magnitude of the
    consequences to the business for each risk identified.

  • Estimated timeframe

Value chain risks

Advanced disclosers also include a description of water risks in the value chain. For many companies (particularly those relying on agricultural production), water risks embedded in the supply chain are of significant concern. However, the specific nature of such risks will vary depending on industry sector and the location of the companies’ suppliers. When reporting on these risks, companies can speak broadly to the key inputs and suppliers that are most exposed to risk, the drivers of those risks, and how they may affect the company (e.g., insufficient materials to maintain production, increased input costs, reduction in product quality, reputational damage).

Connected Reporting

Geographic or Geopolitical Area Risk Category and Driver Consequence for Business Time-frame Company Response

“TONGAAT HULETT (DRAWN FROM 2013 CDP WATER DATA)”

Geographic or Geopolitical Area Risk Category and Driver Consequence for Business Time-frame Company Response
Mozambique; Incomati Flooding Reduced production Current Investment in research and engineering solutions to manage water during flooding period
Zimbabwe; Mutirikwi and Runde Regulatory uncertainty Higher operational costs Unknown Engagement with regulatory authorities