Investors Use Climate Playbook to Scale Action on Water
Above: Los Angeles Cleantech Incubator (LACI) 2019 event on Federal Carbon Pricing Policy. Kirsten James of CERES, Professor Antonio Bento, Ph.D, Director of USC Center for Sustainability Solutions, and Fran Pavely, Former California State Senator.
Roughly half the industries in our economy face significant water risks.
That’s the startling insight we uncovered when we analyzed the sectors represented in the four main U.S. stock indices. These risks, including dwindling water sources, pollution, climate change and increasing competition, affect industries across the board, from agriculture to utilities, apparel to oil and gas.
And yet, most companies still consider their water risk a concern that is siloed in their strategic long-term planning or an anomaly that will right itself.
So, how do we break through this disconnect? How do we convince capital markets that today’s headlines like this one – ‘Megadrought’ emerging in the western US might be worse than any in 1,200 years – isn’t an exceptional event but a preview of widespread water scarcity and uncertainty if we don’t change the status quo?
At Ceres, we are aggressively applying to the water crisis a similar model that is helping capital markets recognize the urgent and material risk businesses face from climate change — mobilizing pivotal institutional investors to shift perceptions.
In March, in partnership with the Government of the Netherlands, we launched a new initiative to catalyze investor leadership around valuing water as a systemic material and financial risk. The ultimate goal: drive companies to act on water-related risks by coalescing the financial sector around a simple yet powerful “ask” of companies to protect water resources across their value chains. At the helm of our work, the Valuing Water Finance Task Force, made up of some of the world’s largest and most influential pension funds and banks, will help us to develop a set of expectations for companies to value water in their business practices.
Many of the founding members of the Task Force have been active in the Ceres Investor Network and Ceres Investor Water Hub, where they have helped to move companies to act on climate and water risks. The members include: California State Controller Betty T. Yee, California State Teachers Retirement System (CalSTRS), Illinois State Treasurer Michael W. Frerichs, New York City Comptroller Scott M. Stringer, New York State Comptroller Thomas P. DiNapoli and New York State Common Retirement Fund, Sweden’s Skandinaviska Enskilda Banken (SEB), Sweden’s Sjunde AP-fonden AP7, Australia’s Hesta Super Fund, AustralianSuper, Cathay Financial Holdings, Cathay Life Insurance, the Government Employees Pension Fund of South Africa, Local Authority Pension Fund Forum (LAPFF) and PGGM.
And this is just the beginning for us. We hope to broaden the “tent” of institutional investors, commercial banks, leading scientists and nonprofit organizations collaborating with us to advance this critical work on water.
We have already seen how powerful coordinated action from influential investors can be on addressing water risk. In May, 71 percent of independent shareholders of Pilgrim’s Pride Corporation – the second largest poultry processor in the U.S. – voted in favor of a shareholder proposal requesting that the company report to investors how it plans to reduce water pollution within its supply chain. In its fourth year of coming to a vote, this is the highest level of support this proposal has received, a clear signal that independent investors (Pilgrim’s is majority-owned by Brazilian meatpacking giant JBS SA) are dissatisfied with the company’s approach to managing water risks.
And since launching last year, a coalition of 90 investors targeting the climate and water risks at the six largest fast food companies has notched key advances. McDonald’s, Yum! Brands, and Chipotle Mexican Grill have publicly committed to setting science-based emissions reduction targets. McDonald’s has also undertaken a water risk assessment and committed to assess the resilience of its animal protein supply chain to various warming scenarios.
But even this coalition, which is organized by Ceres and the global investor network FAIRR, has grown 75 percent over the past year to represent $11.4 trillion in assets under management, recognizes that the fast food giants still have much more to do. In January, the coalition called on the fast food companies to step up their efforts.
The sheer scope of the water crisis means that the entire financial system has to get onboard—and act boldly to significantly reduce water impacts. Creating this shift will depend on bringing together a broad group of investors and companies that recognize the market, financial and reputational risks of water use and management and act to mitigate these risks.
But before we can develop sound corporate expectations on water, we need to conduct foundational research and analysis and build the tent.
First, we plan to drive home the scientific and financial case for corporate water leadership. Despite a vast amount of research and real world examples, most investors are simply unaware of how dramatically our current way of doing business is threatening the availability and viability of the water resources companies depend on.
Why? The research hasn’t been brought together in a way that summarizes — for a financial audience — the extent of these impacts, the industries involved and the business practices that are having the most severe impact on freshwater resources. To address this gap, we will tightly focus on building the case for investors by compiling both scientific and financial evidence. And we will communicate it in ways that enable capital market actors to justify why addressing water issues needs to be a priority.
Second, building on these scientific and financial insights, we’re going to harness the influential voices of financial sector leaders to put the spotlight on water risks and create momentum for others within the financial community to get involved. With our Task Force serving as the vanguard, we will build momentum around this growing initiative to value water. And to help investors and bankers understand the key systemic risks within portfolio companies and sectors, we’re creating a set of actionable steps that is a blueprint for engaging in ways that will help both companies and financial markets.
Business has the innovative ingenuity to redefine water use and management. But to get there, we need to redefine how our societies and economies think about water. We can no longer afford to think of it as an infinitely available commodity. Instead, we need to realize just how valuable it is.
Article by Kirsten James, director of Water at Ceres. Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. Kirsten James directs Ceres’ strategy for mobilizing leading investors and companies to address the sustainability risks facing our freshwater and agriculture systems. Previously, Kirsten served for five years as the director of California policy and partnerships at Ceres, where she led strategy development for our California-focused policy work, engaging companies and investors in support of public policies that call for sustainable water management, clean energy and greenhouse gas emissions reductions in California. Kirsten has been a regular blogger in publications such as Water Deeply, providing commentary on water policy and corporate water stewardship. In her personal capacity, she serves as an executive board member on the Los Angeles League of Conservation Voters and a committee appointee for the Los Angeles County Safe, Clean Water Program. Prior to Ceres, Kirsten worked for nine years at the Santa Monica-based environmental group, Heal the Bay, as their Science and Policy Director. She graduated with a bachelor’s degree from Northwestern University and a master’s degree in environmental science and management from the Bren School at University of California Santa Barbara.