CDP announces The Water Disclosure Questionnaire for 2010 (Photo: laszlo-photo)

If you love the Carbon Disclosure Project Questionnaire, you will love the Water Disclosure Questionnaire. The question is:  Are you prepared?

The CDP recently announced that they would begin sending out a Water Disclosure Questionnaire in 2010 to the largest 300 global companies and the questionnaires will be summarized in a report in late 2010.

I fully expect the CDP Water Disclosure Questionnaire to be as successful as the climate CDP questionnaires based upon the relatively rapid adoption of the CDP in motivating companies to discuss the risk and opportunities of climate change to their businesses. The CDP was launched in 2000 with the goal of collecting and distributing information on climate risks and opportunities. The CDP now has over 2,500 organizations in 60 countries measuring and disclosing their greenhouse gas emissions and climate change strategies.

These organizations voluntarily quantify their greenhouse gas footprint, set reduction targets and improve performance. The disclosure information is made available to institutional investors, corporations, policymakers and their advisors, public sector organizations, government bodies, academics and the public.

Equally impressive as the number of organizations that disclose greenhouse gas information is that the CDP is represented by over 475 institutional investors, holding $55 trillion in assets under management. This is the real driver for voluntary disclosure—investors are asking for this information—and why the Water Disclosure Questionnaire will be a critical aspect of corporate strategies and communications.

The Water Disclosure Questionnaire will help institutional investors understand the risks and opportunities from water scarcity and water related issues confronting businesses. Global financial institutions such as NBIM, Schroders, APG Asset Management and Dexia Asset Management support this new CDP program and have taken the lead on developing an understanding of water risk to their investment portfolios.

According to the CDP, the rationale for the water disclosure questionnaire is that “companies face risks such as lack of water impacting agricultural and manufacturing processes and the threat of regulation increasing prices and limiting the volume of water available to them.” Moreover, the lead sponsor of the CDP Water Disclosure Project, NBIM stated “as water becomes an increasingly constrained resource, it also becomes an investment issue. It is vital that institutional investors have access to high quality information on how water-related risks threaten corporations, both directly and within their supply chains, in order to make better-informed decisions and direct the flow of capital away from risks and towards solutions. CDP Water Disclosure will be essential to providing investors with this information.”

Report shows ample room for improvement in corporate water accounting

The announcement of the project came with the release of a CDP report titled, “The Case for Water Disclosure”.  This report is a must read as it not only lays out the rationale for water disclosure but summarizes the results of a small scale water disclosure pilot project initiated by CDP in 2008 (as part of the CDP Supply Chain project).

The pilot project demonstrated that for the most part companies have the ability and are willing to disclose information on water data and water issues. The key findings from the report were mixed:

The good news? Most companies do have information on their direct water usage.  More than half of the respondents see water as an opportunity and many companies have a water management plan, but only for their own plants.

The bad news?  Most companies do not have data on water use or water issues in their supply chain. Only half of the respondents saw water as a risk for their business and for their supply chain. And apparently that is especially true for the food and beverage industry as no companies in the industry responded to the questionnaire.

My advice for any company is to measure your water footprint, identify risks and opportunities (direct and indirect water use) and be prepared to disclose how you will manage your water related risks and what are your business opportunities look like.

Your investors are waiting for your response.