Food and beverage producers face rising costs that could curtail growth as water shortages and pollution become more severe, a group of investors warned in a new report.
Water scarcity is already impacting companies in drought- stricken regions such as California and Brazil, according to the report Thursday from Ceres, a Boston-based coalition of investors with more than $13-trillion (U.S.) in assets. While some producers are taking steps to manage water risks, most have fallen short, Ceres said.
"It definitely is a growing threat," Nick Martin, sustainability practice lead for Antea Group, an engineering and environmental consultant, said in an interview. "It's being taken a lot more seriously now than maybe it was 5 to 10 years ago."
Of the 37 publicly traded companies evaluated in the report, 91 per cent cited water as a "material risk" in financial filings. Water scarcity is already impacting balance sheets by disrupting operations and limiting growth.
Coca-Cola Co. scrapped plans last month to build a bottling plant in northern India where farmers fear overuse of groundwater and pollution. Cargill Inc. said fourth-quarter profit last year fell as drought damaged U.S. pastures used to raise beef. Unilever NV said that natural disasters linked to climate change that cut water supplies, increase food costs and lower productivity, cost the company about $400-million annually, according to the report.
In transcripts of quarterly earnings calls analyzed by Ceres in February, drought was discussed only 12 times. Half of the references came in response to analysts' questions. Supply chain and pricing impacts of drought in Brazil and the Western U.S. were discussed most often.
For nearly half of the companies, management-level oversight for water was relegated to executives at least two levels below the chief executive officer. Just 16 percent of the companies have sustainable agricultural policies that address water, with PepsiCo Inc. and Unilever "being the most robust," the report said.
Campbell Soup Co., Dean Foods Co., Molson Coors Brewing Co. and Unilever are "the only companies that offer explicit financial incentives to the CEO and executive officers for water-related performance," according to Ceres.
"Many of the companies assessed in this report had relatively weak systems - if any at all - for collecting and interpreting data on the severity of their exposure to water risks," according to the report. "Companies should accelerate risk assessment, including analysis of their manufacturing and agricultural supply chains."