Investors add $10 trln activist wrench to H2O risk

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Urus Muratos men walk on the dried lake Poopo affected by climate change to make an offering to Kota Mama (Mother Water), in the Oruro Department, Bolivia, September 1, 2017. Picture taken September 1, 2017. REUTERS/David Mercado

MELBOURNE, Aug 22 (Reuters Breakingviews) - Get ready to hear rafts of executives blame “drought”, “flood” and “natural disaster” for poor earnings in the next few months. On some levels, that’s understandable: large swathes of the Americas, Europe, Asia and Oceania have been suffering from either too little or too much water, and sometimes both in quick succession. But it’s also tired old language that obfuscates how such financial pain is a consequence of long allowing water risk to play second fiddle to greenhouse-gas emissions in battling climate change. Now DWS (DWSG.DE), Fidelity International, CalPERS and some 60 other investors with almost $10 trillion in assets between them are trying to change that.

The group has just launched the Valuing Water Finance Initiative after more than two years of constructing the scientific case for action. Despite its somewhat airy name, the VWFI will target 72 food, beverage, technology and apparel companies from Microsoft (MSFT.O) to McDonalds (MCD.N) to properly assess their exposure to the resource, as well as better manage and protect it. It’s modelled on the Climate Action 100+, a carbon-focused initiative led by 700 investors holding $68 trillion in assets; climate nonprofit organisation Ceres is a founding member of both.

It's not that water risk is completely ignored. A smaller Ceres-led investor campaign in the past targeted fast-food chains, while another nonprofit, CDP, has warned that the cost of ignoring water risks costs companies five times as much as dealing with them. Shareholders, too, are starting to take companies to task for downplaying the risks. Earlier this month, for example, more than 60% of independent shareholders backed an investor proposal calling on Tesla (TSLA.O) to develop a better water strategy. But such resolutions are rare and infrequent.

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There are good examples of corporate water action to draw on, including strategies from AB InBev (ABI.BR), Coca-Cola (KO.N) and Intel (INTC.O); these range from making their plants water-efficient to helping their supply chains and the communities they operate in to be more water aware and secure. Some of these companies are on the VWFI’s initial target list – a smart move that should help more speedily develop best practices for the laggards. With recent global events showing yet again how the effects of the changing climate are felt most through water, it’s past time to pipe in a concerted investor solution.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

A group of 64 investment firms collectively managing almost $10 trillion in assets on Aug. 16 launched the Valuing Water Finance Initiative VWFI to push companies with a high water footprint to value the resource properly, to understand its potential to pose a financial risk and to adapt their strategy accordingly.

Among the 64 founding members of the VWFI are Fidelity International, Franklin Templeton, DWS, AustralianSuper and the California Public Employees’ Retirement System.

The group is initially targeting 72 companies in the food, beverage, apparel and technology sectors, including Coca Cola, Anheuser-Busch InBev, Adidas, Lululemon Athletica, Apple, Alphabet, Kraft Heinz and Unilever.

The initiative, which was spearheaded by U.S.-based climate nonprofit Ceres and the Government of the Netherlands, is based on six major targets for companies. These encompass: water quantity and quality; ecosystem protection; universal and equitable access to water and sanitation; proper board oversight; and ensuring policy lobbying is aligned with sustainable water resource management.

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Editing by Robyn Mak and Thomas Shum

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