Feeding ourselves thirsty: Ceres’ investor guide to portfolio water risk

Investors need to think about re-balancing their portfolios away from companies whose supply chains are highly dependent on groundwater use, argues one of the report's authors, Brooke Barton.

A new report has revealed that food and agribusiness companies are the worst at managing the impact of their operations on the water supply chain and managing their water risk. Its authors argue that investors should do more to question their portfolio companies.

“Feeding Ourselves Thirsty”, a report published by Ceres, a Boston-based non-profit promoting sustainability in business, scored 37 major food companies and six agribusinesses on a scale of 0-100 and they all scored less than 50, with one agribusiness scoring as low as 5.

The scoring system –the Ceres Aqua Gauge – was based on four categories including their overall corporate governance and management of water risk and actions to reduce water risks; the impact of their direct operations; the impact of their manufacturing supply chain; and of their agricultural supply chain.

“I hope [the report] will wake up the food and agribusiness sector,” Brooke Barton, the senior director for Ceres’ water program, told Agri Investor. “We are coming to an end of the cheap groundwater globally … we really have some pretty harsh limits on where agricultural production can expand given the enormous uncertainty of climate change.” She said the report serves as a wake-up call for executives and investors on how they function. Many companies now have long and opaque supply chains and they have very little understanding of the underground condition of the water supply they are relying on.

“[Companies] are not doing enough and they fall short on policies for water governance,” added Marcela Pinilla, one of the expert reviewers for the report and also the director for shareholder advocacy at Mercy Investment Services, a socially-responsible asset management program for the Sisters of Mercy, an international community of Roman Catholic women.

‘Water is like the bank account for the future and we don’t know how much is left in there,” she added. “We keep withdrawing without knowing the balance and it’s very complex issue to begin with.”

The average score among six agricultural product companies is 14.6 with the highest being 29 for Bunge, and lowest being 5 for Ingredion. Big corporations like the Coca-Cola, Nestlé and PepsiCo had higher scores with 67, 64 and 55, respectively, according to the report.

“Companies that scored highly on the report don’t score as high we think they should,” Pinilla told Agri Investor.“Giving the importance of water risk management in the agriculture sector, these companies are still falling short of what we see as appropriate water governance.”

It is hoped that investors will use the report as a benchmarking tool by offering guidance and relevant data to help them evaluate the water risk of their investment holdings.

The report makes a few recommendations for companies and investors to improve their water management, mitigate short-term risks and foster long-term solutions that ensure sustainable food and water supplies. They include increasing board oversight and understanding of material water risks; conducting robust water risk analysis; addressing watershed-level risks; and tackling water risks and impacts in agricultural supply chains. The report also suggested that companies improve the disclosure of their exposure to water to their investors.

“More and more investors are beginning to realise that they need to evaluate their portfolios to see which are the largest consumers of water and also evaluate their exposure to water polluters like chemical companies,” said Pinilla. Portfolio managers need to do comprehensive analysis on this subject, she added.

“In the long run, investors need to think about rebalancing their portfolios away from companies whose supply chains are highly dependent on groundwater use,” added Barton.

While the report calls for better management of water along the supply chain, at government levels and in operations, it also highlights the opportunity for the agtech sector to step up and produce technologies to help combat water shortages and improve inefficiencies, according to Pinilla.

“Companies that are developing technologies that help us track at acre level that how much water is being applied or used in production will definitely get attention from investors and we are watching these companies too, to play a role,” she said.

SWIIM, a Californian start-up is one example of an agtech company that is raising capital to develop its technologies that aim to enable farmers to closely monitor their usage and sell unwanted water rights back to the market.

Read Feeding ourselves thirsty: how the food sector is managing global water risks.