New Report: Major Food Companies Must Adapt to Escalating Global Water Risks

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BOSTON, May 7, 2015 /3BL Media/ - Major U.S. food companies need to adopt far stronger practices to use limited global water resources more efficiently, according to a report released today by Ceres, a nonprofit sustainability advocacy group.

The report, Feeding Ourselves Thirsty: How the Food Sector is Managing Global Water Risks, ranks the nation’s 37 largest food companies on how effectively they are managing precious freshwater supplies. While a relatively small number of firms are taking broad actions to manage water risks in their operations and supply chains – Unilever, Coca-Cola, Nestlé, PepsiCo, General Mills and Kellogg, among those – most have a long way to go in using water more sustainably, the report concludes.

“The twin challenges of global water scarcity and pollution are contributing to a water availability emergency that threatens the profitability of food companies and long-term food and water security,” said Brooke Barton, senior water program director at Ceres, who co-authored the report.  “The good news is that more food companies are beginning to respond to these risks, but they must deepen and broaden their efforts, especially in regard to agricultural supply chains.”

The report examines how water risks are affecting the profitability and competitive positioning of food companies, such as by disrupting operations, limiting growth or increasing agricultural input costs, in four industries: packaged food, beverage, meat and agricultural products. Companies were each scored on a 1- to 100-point scale on their responses in anticipating and mitigating these risks, with the highest score being Unilever with 70 points, the lowest being Monster Beverage and Pinnacle Foods, with just one point each.

Top scoring companies by industry were Unilever (Packaged Food: 70), The Coca-Cola Company (Beverage: 67), Bunge (Agricultural Products: 29) and Smithfield Foods (Meat: 33). (See all company scores: www.ceres.org/foodwaterrisk#scores)

The report makes clear that escalating water competition, combined with weak government regulations, increasing water pollution and worsening climate change impacts, is creating unprecedented water security risks for the food industry. In California, an estimated half-million acres of farmland have already been fallowed by a prolonged drought, causing more than $1 billion of economic losses for the agriculture sector. Similar water risks are being experienced in other major growing regions, including Brazil, Mexico and China.

“One third of the major aquifers worldwide are being rapidly depleted. Unfortunately, these are the same aquifers that provide groundwater to irrigate the world's major food producing regions. Our water and food security is at far greater risk than we realize,” said Jay Famiglietti, Professor of Earth System Science at UC Irvine, and the Senior Water Scientist at NASA's Jet Propulsion Laboratory.

Globally, food production is the most water intensive business on earth, using 70 percent of the world’s dwindling freshwater supplies. At the same time, surface water pollution from fertilizers, manure and pesticides is contaminating drinking water around the world and led to the shutdown of the city of Toledo’s water supplies last summer.

Other key report findings:

• Although water risk was identified as a corporate governance priority by many of the companies, board oversight of water did not consistently translate into strong overall performance. Sixty percent of the 16 companies with board oversight of water risk received fewer than 35 total points.
• Only 30 percent of the companies considered water risks as a part of major business planning and investment decision-making. Nestlé and Unilever were the only companies that reported using a “true cost” or shadow price for water in analyzing the return on investment (ROI) of water-efficiency capital spending.
• A majority of companies (23) have begun to evaluate water risks in their direct operations, but two-thirds (22) are still not evaluating water issues in their agricultural supply chains, where the vast majority of water risks lie.
• Water quality was a lower priority. Only two companies – Coca-Cola and Nestlé – report goals to reduce wastewater discharges and improve water quality beyond compliance requirements. Most do not disclose the percentage of their facilities complying with local wastewater discharge regulations.
• Only 16 percent (6) of companies have sustainable agriculture policies that address water. Only four companies – Coca-Cola, General Mills, Kellogg and Unilever –have set time-bound goals to source the majority of their agricultural inputs from farmers using responsible water practices.
• Four companies – General Mills, Keurig Green Mountain, Unilever and WhiteWave Foods – offer financial support to help growers farm more sustainably. Examples include premiums for more sustainably grown inputs and favorable financing terms or interest-free loans offered for equipment.

“As a global food company, we recognize that conserving water resources is imperative to our business: our consumers, customers, farmers and operations,” said Ellen Silva, senior manager of applied sustainability at General Mills. “Water is a complex issue that spans communities, agriculture and industries, so in order to achieve progress, collaboration will be critical. We hope that this report can be a call to action for other companies to assess their water risk as well, and to join in that collaboration.”

The report provides specific recommendations for how food companies can improve water efficiency and water quality across their operations and supply chains to reduce risks and protect water resources, including by:

• Increase board oversight and understanding of material water risks.
• Conduct robust water risk analysis from manufacturing facilities down to the farm field.
• Address watershed-level risks by investing in projects that improve watershed health and by supporting public policies that ensure sustainable water management.
• Work with farmers to tackle water risks and impacts in agricultural supply chains.
• Improve disclosure to investors and other stakeholders on water risks, performance and management plans.

It also includes recommendations to help investors and analysts evaluate food sector companies on their water exposure and management practices.

“CalPERS Investment Beliefs call out natural resource scarcity as a risk that needs to be managed well, with water being a prime example,” said Anne Simpson, Senior Portfolio Manager and Director of Global Governance at the California Public Employees Retirement System (CalPERS), the nation’s largest public pension fund with $300 billion in assets under management.  “Companies which manage resource risks well will be positioned for long term, sustainable value creation. The Ceres report gives new insight with research on how water scarcity brings both risk and opportunity to companies.”

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Ceres is a nonprofit organization mobilizing business and investor leadership on climate change, water scarcity and other sustainability challenges. Ceres directs the Investor Network on Climate Risk (INCR), a network of over 100 institutional investors with collective assets totaling more than $13 trillion. For more information, visit www.ceres.org or follow on Twitter @CeresNews or @ValueEveryDrop.