Measuring and disclosing risks, opportunities and impacts of economic activities is critical to support the transition to a sustainable economy
COP27 is a climate change summit and perceived by many as an important moment for the world to come together and radically increase the use of renewable technologies and electric vehicles.
But it is equally about nature, how we protect, restore and conserve what we have left of the natural world to reduce greenhouse gas (GHG) emissions and enhance climate resilience. At COP26, all governments formally recognised that the climate and nature crises are deeply linked, and we cannot solve one without the other.
The world’s rivers, lakes, streams and aquifers must all be allowed to play their parts in preventing the climate emergency. Last year in Glasgow saw the first time that water had its own dedicated pavilion at a climate conference as well as an important refresh of the Water Climate Action Pathway. These small but important steps showed how water concerns have grown in prominence on the diplomatic stage.
This year the pavilion is back because the water crisis isn’t going away.
The Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment report highlights that some of the greatest climate risks the world faces centre on water. Indeed, severe droughts on every continent this year made it clear to all that the climate crisis is a water crisis, with hundreds of billions of dollars at stake.
The Carbon Disclosure Project (CDP) has been working for years to bring investors and companies to the table on the water crisis. Evidence built up over that time shows that private sector disclosure of water information is the foundation for real action to stem both the water and climate crises.
Measuring and disclosing risks, opportunities and impacts of economic activities is critical to support the transition to a sustainable economy. This information helps a range of stakeholders, from investors to consumers, make smarter decisions and increases their expectations of companies.
We know this pressure compels the private sector to act. Every year, CDP sends a questionnaire to companies in sectors with the greatest water impacts. This is issued on behalf of more than 680 investors, banks and insurance firms, representing more than $120trn in assets.
This year, it was sent to almost 7,000 companies and 1,200 influential financial institutions all of whom have their responses publicly benchmarked and ranked by CDP. The data and scores are fed into the heart of decision-making platforms and corporate credit ratings.
Companies which have consistently disclosed to CDP make changes to ensure that valuing water is placed at the heart of the business. These include changing financial plans; putting a price on water risk; creating targets to reduce water impacts; and increasing investment in sustainable solutions.
For the most part the world has no clue how the banking sector is using its enormous influence, and $148trn in assets, to address the water crisis. One of the main reasons for this is the repeated failure of national governments to step in and create policies which value water.
CDP has moved to close this gap by inviting 1,200 publicly listed financial institutions to disclose portfolio-related water risks and impacts for this first time, with the first results to come early next year.
From food production and finance, to mining and manufacturing, the private sector sits at the heart of global supply chains, but these sectors have chronically undervalued and mismanaged freshwater. This has triggered damaging social impacts, with vulnerable communities being disproportionately impacted. How these companies choose to grow will make or break our ability to solve the water and climate crises.
Water transparency is a fundamental tool to harnessing the power and ingenuity of markets. Less information means less certainty, and investors which lack these insights will never be sure of a company’s real fundamentals and true risk.
It is difficult, if not impossible, to evaluate a company’s investment performance and that of the financial institution fuelling it if its investments in and governance of water security issues are hidden from view. In contrast, mandatory water disclosures enhance market stability, contribute to creating a sustainable financial system, and align financial systems with water security targets.
The absence of public reporting, at scale, by the private sector has reduced the ability of the world to adopt and scale positive water security interventions. Without a clearer picture, it becomes difficult for civil society and regulators to hold institutions to account. The power of institutions that could prevent the water crisis remains untapped. The private sector has the potential to move trillions if properly guided and informed.
As we enter the final strait of COP27 we need to make sure these concerns are heard loud and clear. Governments need to mandate reporting on water use, pollution and associated risks as quickly as possible if we are to keep a 1.5°C, resilient future within reach.