Nestle, Rio Tinto lead on managing water risk

Tue Oct 18, 2011 4:09pm EDT

Related Topics

* Risk includes financial fallout from droughts, floods

* Affects food, agriculture, energy, other industries

* Online Aqua Gauge assesses businesses' water management

By Deborah Zabarenko, Environment Correspondent

WASHINGTON, Oct 18 (Reuters) - Food giant Nestle Ltd and miner Rio Tinto are among the companies best placed to cope with water risks from floods, droughts and pollution, according to a new investment tool released on Tuesday.

Geared to institutional investors, the Aqua Gauge released by the Ceres coalition of investors and environmental groups measures how well companies are prepared for water scarcity and water stress, which are forecast to worsen in coming decades.

Consultants McKinsey & Company estimate a possible 40 percent global shortfall between forecast water demand and available supplies by 2030, Ceres President Mindy Lubber said in a telephone news briefing.

"Few companies are fully disclosing their water risks to investors, nor are they taking measures to manage those risks," Lubber said. "Investors need this tool."

A report accompanying the release of the gauge showed some companies leading the way, including Nestle, which has a customized water risk mapping tool, and Rio Tinto, which is working to put a financial value on water in mining operations.

"Climate change and population growth will only add to water scarcity pressures," Lubber said.

The impact of water scarcity and water stress -- what happens when demand for water exceeds supply or when poor quality restricts use -- has already hit water-intensive companies and supply chains in Russia, China and across the southern United States, Ceres said in a statement.

APPAREL, GAS AND FOOD

The coalition said this has in turn affected:

-- Apparel-maker Gap Inc , which dropped its annual profit forecast by 22 percent after record drought devastated the Texas cotton crop, a major source for the company;

-- Gas producer Toreador Resources, whose stock price dropped 20 percent after the French government banned shale-gas fracturing, also called fracking, primarily over concerns about what the process does to water quality;

-- Kraft Foods Inc , Sara Lee Corp and Nestle, which all announced planned increases in prices to offset higher commodity costs caused by droughts, flooding and other factors.

The gauge was created with input from 50 investors, companies and public interest groups with a collective stake of more than $1 trillion under management and lets users score a company's water management against competitors.

Jon Lukomnik, executive director of the IRRC Institute, which funds research on corporate responsibility, noted in a telephone news briefing that, on a recent trip to China, he saw presentations from two mainstream investment banks -- HSBC and CLSA -- that included water risk.

"Why were these mainstream investment banks spending time, resources, personnel and money explaining water risk in China to us?" Lukomnik said. "It turns out that nearly 40 percent of China's food production comes from water-stressed areas; 53 percent of China's industrial output is in water-scarce regions. Water input costs for manufacturing are expected to rise by a factor of three to five times in just a few years."

Greg Koch, global head of water stewardship at The Coca-Cola Co , said at the briefing he would look to the gauge as a road map, noting that, because the company's beverages are bottled locally for each community they serve, "the health of our business is completely dependent on the health of that community and that watershed."

Visible online at www.ceres.org/aquagauge, the investment tool lists key areas of corporate water management.

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