A first-of-its kind study of the water footprint of different industries has concluded that apparel, financial services, and fossil fuels are the sectors with the most acute impact on the world's water resources.
To produce its first ever water impact index, published last week, environmental disclosure platform CDP ranked more than 200 industrial activities based on their impact on global water quality and quantity.
The pioneering study found the apparel and textile manufacturing sectors, cotton farming, livestock farming, oil and gas extraction, and mining are among the sectors with the largest potential impact on the world's rivers, lakes, aquifers, and streams.
The finance sector is also singled out in the index as having a critical impact on global water resources, due to its role as an enabler of other industries' water pollution and damage and obstruction of waterways. The report highlights how the investment sector provides financing to miners that build tailings dams that cut off free-flowing rivers and hurt ecosystems, agribusinesses that pump large amounts of non-renewable groundwater for their operations, and chemical, apparel, and phamaceutical companies that release toxic pollution into waterways.
CDP said it hoped the insights gathered through the tool, dubbed Water Watch: CDP's Water Impact Index, would help plug a "critical data gap" that would enable financial institutions to better understand and address their exposure to water-related risks. Campaigners maintain that companies with a poor track record of managing their water impacts could face a host of stranded asset, regulatory, reputational, and supply chain risks similar to those faced by carbon intensive firms.
"Financial institutions have a critical role to play in facilitating the transition to a water-secure economy," said Cate Lamb, global director of water security at CDP. "Water Watch: CDP's Water Impact Index shows that the level of water impact in investment portfolios is significant, with banks, investors and insurers being exposed to critical levels of water impacts, and hence risk, through their shareholdings and loans. Equipped with the right information and robust data, investors can drive progress toward a water secure future."
Lamb added that achieving a water secure, net zero emission future would require a "complete transformation" of the global economy. "To succeed, companies responsible for the greatest impacts on water resources must transform their business models, products and practices in ways that decouple production and consumption from the depletion of water resources," she said.
The analysis warns that many of the world's largest companies have "consistently failed" to disclose their water-related data to investors, with oil and gas giants Chevron and Royal Dutch Shell singled out as having neglected to provide sufficiently detailed information on their water impacts for more than a decade.
Adam Black, head of ESG and sustainability at Coller Capital, said the water index was a "valuable tool" that would allow the investor to screen its portfolio for water impact and identify the water risk exposure of the companies it was invested in.
"We are excited to use CDP's Water Watch to identify the potential impact of our portfolio on water security," he said. "ESG monitoring and engagement are core elements of our programme and we constantly seek new methods, data and tools to enhance our approach. However, as a secondaries investor with indirect exposure to thousands of underlying companies, we recognise the inherent challenges to effective monitoring and engagement."