GLOBAL - Only a fraction of the world's largest companies are adequately managing the risk of water shortages, drought and pollution, according to new research from independent environmental, social and governance (ESG) research provider EIRIS.
EIRIS's report - 'A drought in your portfolio: are global companies responding to water scarcity?' - shows 54% of 2,000 global companies analysed are exposed to water risks - particularly in sectors such as oil and gas, mining, power generators, semi-conductor plants, retail chains and agriculture.
Yet those companies have taken little or no action to mitigate those risks, it said.
Around half show no evidence of any management response to water risks whatsoever.
Only 0.2% have adequate management systems, policies and reporting mechanisms in place to tackle the risks.
Of those companies exposed to water risks, a mere 9.7% have set either short or long-term targets on water consumption, and only 9.7% have set targets on water quality.
However, 36% of companies have at least acknowledged water as an issue that needs to be addressed, and 22% demonstrate that they are monitoring water consumption.
Overall, the chemicals and pharmaceuticals sector has shown the best response so far in dealing with the risk of water.
James Winpenny, a consulting author for UNESCO's World Water Assessment Programme, said: "It is clear water scarcity creates both investment risks and opportunities. Through shareholder activism, investors can ensure companies are fully aware of the impact of their operations on water and, vice versa, on their exposure to water risk.
"They can also seek investment opportunities from the green economy agenda and align their portfolio strategies more closely to this."
Randeep Sanghera, report author and lead water analyst at EIRIS, added: "Water management deserves to be at the core of any ESG investment approach.
"Investors should demand an increased level of reporting on water and encourage companies to put the management of water at the centre of their sustainability strategies."
Under a current, business-as-usual scenario, water demand is set to outstrip supply by 40% by 2030.
This has the potential to put $63trn (€43.8trn) of global GDP at risk by 2050.
EIRIS's full report can be found here.