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In Focus: Water Scarcity

On September 22, Ingrid Dyott, portfolio manager for the SRI Team, participated in a webinar with other investors to discuss how data from the CDP on water usage can be integrated into environmental analysis.

In the panel, sponsored by CDP, several participants discussed the importance of water disclosure as it relates to businesses operating amid increasing water scarcity. The hour-long webinar covered business-related water issues that can have an impact at both company and portfolio levels.

Water Challenges-and Opportunities

Investors are increasingly becoming aware of the risks linked to water scarcity. More than a billion people currently live in water-scarce regions, and as many as 3.5 billion could experience water scarcity by 2025. 1 Some of the world's largest underground aquifers, a source of fresh water for hundreds of millions of people, are being depleted at unsustainable rates, according to new NASA satellite data. 2 This includes groundwater supplies in the western United States that are not being replenished due to prolonged drought.

Water is not just about risk. As the World Health Organization (WHO) observes, achieving improvements in water supply and sanitation could bring economic benefits, with every dollar invested providing an economic return of between $3 and $34. 3

Water Scarcity Is Intensifying

More than a billion people currently live in water-scarce regions, and as many as 3.5 billion could experience water scarcity by 2025.

Global Baseline Water Stress

Source: WRI

Why CDP Water Data Is Important for Investment Analysis

Looking at water-related risks and opportunities has long been an integral part of the Neuberger Berman SRI Group's research framework. Similar to other emissions data, we believe that CDP water data helps to identify risks and business opportunities. As we have also seen with carbon data, self-reporting generally results in reliable data; when companies don't report, assumptions and estimates are made that are not always accurate.

Water analysis differs from carbon. Water is regional; carbon is global. Investors typically look for companies to report on reduction initiatives and targets for both. Comprehensive disclosure assures credibility, in particular when companies specifically identify what is not included (certain geographies, [joint ventures, suppliers, etc.). Ultimately, effective environmental, social and governance reporting involves not just water, but carbon and other factors, and requires a full cycle assessment of operations, supply chain and customer benefits from products and services offered.

Industry examples

The panelists discussed how water issues impact certain industries ranging from semiconductors to energy. In some cases water can have a direct effect on operations, while in others, such as in the agricultural sector, water is a critical supply chain input. Below are two industry examples of how CDP reporting can help investors better understand water related challenges as well as identify competitive advantages.

Industry Challenges CDP Reporting
Semiconductors
  • Significant water supply critical for production
  • Facilities and suppliers often located in water stressed regions
  • Increased complexity has potential to drive water intensity
  • Water supply disruptions can lead to operational challenges and inefficiencies
  • Water management strategy
  • Water quality and quantity, withdrawals, discharges, disposal
  • Breakdown by region
  • Targets/goals in place, progress
  • Enabling tools and technology
  • Suppliers and water use
  • Challenges/trade-offs
Energy
  • Significant water supply critical for production
  • Wells often located in water stressed areas
  • Patchwork of federal, state and county regulations
  • Water management strategy
  • Water quality and quantity, fresh water sources, groundwater sources, discharges, disposal, recycling
  • Breakdown by basin
  • Targets/goals in place, progress
  • Enabling tools and technology
  • Challenges/trade-offs

Source: Neuberger Berman.

Conclusion

The Neuberger Berman SRI team takes an integrated approach to sustainability across our SRI strategy. In our view, CDP water data and analysis is useful in helping to identify companies that have demonstrated a commitment to environmental sustainability by minimizing their water footprint and/or are expanding opportunities by meeting unmet needs in the marketplace.

1 Source: WRI, http://www.wri.org/our-work/project/aqueduct.

2 Richey, A. S., B. F. Thomas, M.-H. Lo, J. T. Reager, J. S. Famiglietti, K. Voss, S. Swenson, and M. Rodell (2015), Quantifying renewable groundwater stress with GRACE, Water Resour. Res., 51, 5217-5238, doi:10.1002/2015WR017349. http://onlinelibrary.wiley.com/doi/10.1002/2015WR017349/pdf

3 World Health Organization. (2012). Global costs and benefits of drinking-water supply and sanitation interventions to reach the MDG target and universal coverage. http://www.who.int/water_sanitation_health/wsh0404summary/en/

The time horizon chosen in this analysis, for all interventions, is 2015.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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