Oliver Balch reports on how recent natural disasters have prodded brands to target water security as part of their climate response, and how the pandemic is deepening the pay gap

“Building resilience faster”, the tagline for this year’s World Water Week, could not have been more apt.

Losses from Germany’s flash floods a few months ago could hit almost $6bn, for instance, while insurers in the U.S. will be totting up the cost of the recent floodwaters from Hurricane Ida for some time to come. As UN Water warns, progress will need to double – and in some cases quadruple – if the global goal of providing “clean water for all” by 2030 (SDG6) stands a hope of being achieved. According to the agency’s latest progress report, one in 10 people lives in (invariably poor) countries experiencing high or critical water stress. Such a scenario “significantly affects” economic activities, agricultural production, and food security, UN Water concludes.

The key word, however, is “building”. Water security won’t happen of its own accord. So, who is taking action? And what role do brands have to play? As with all UN events, pre-conference announcements proliferated. Facebook (one of 10 core World Water Week sponsors) and PepsiCo both announced intentions to become “water-positive” by 2030. Neither is starting from scratch. In the case of the U.S. social media giant, investing in state-of-the-art cooling and humidifying systems in its data centres has already pushed its water efficiency by 80%.

On the supply side, meanwhile, it is operating watershed regeneration projects in six drought-prone U.S. states where its facilities are based – including its home state of California. For its part, PepsiCo has been working on water stewardship for well over a decade. In 2020 alone, it replenished local water sources to the tune of 2.3bn tonnes of fresh water.

PepsiCo reports a 15% increase in operational efficiency in water-risk areas since 2015

The notion of net water positive draws from business accountancy 101: in short, revenues (in this case, water regenerated) must exceed expenditure (water use) to be viable. It’s a similar logic to net zero with carbon, albeit with two significant differences. First, with water, geography matters. One tonne of carbon is the same anywhere in the world; the atmosphere doesn’t care. In contrast, the value of water differs hugely from place to place. One litre in the Gobi desert, in other words, is not the same as one litre in the Amazon rainforest. Second, while most carbon targets settle with a neutral balance between carbon emitted and carbon stored (through photosynthesis, typically), water commitments are increasingly expressed as a net positive: more water replenishment than consumption.

Nevertheless, in both carbon and water the emphasis is on reduction before mitigation/replenishment. PepsiCo reports a 15% increase in operational efficiency in water-risk areas since 2015, and a 14% improvement in its agricultural supply chain since the same date. To hit its positive 2030 target will require a 50% reduction in water use, the brand calculates.

And as with carbon strategies, the replenishment piece relies heavily on two factors: hard investment in technology and infrastructure, and the creation of novel partnerships. Neither Facebook nor PepsiCo publishes the totality of their anticipated water-related investments, but as a barometer, PepsiCo has spent £53m over the last 15 years. As for partnerships, these are organised on a watershed-by-watershed basis, although PepsiCo works closely with WaterAid in Africa to meet its commitment to provide 100 million people with safe water by 2030.

Robustness is another parallel concern. Brands with net-zero commitments are increasingly in the spotlight for using offsets to justify continuing to emit high volumes of emissions. Likewise, question marks hover over corporate water commitments. While “water-positive” targets are not nearly as ubiquitous as net-zero goals (Microsoft and BP are two other notable water positivists) they are increasing amid growing pressure on companies to address the biodiversity crisis as well as climate change.

A case in point is cement giant Holcim’s announcement this month that it has struck a partnership with the International Union for Conservation of Nature to deliver a net-positive impact on biodiversity by the end of the decade, including a target to achieve water positivity at 75% of its sites, prioritising those facing high levels of water risk.  

But talk of “water stewardship” is far from new in business circles. Way back in 2007, for example, the UN Global Compact set up its CEO Water Mandate with a goal of reducing water stress. The business-led initiative currently counts 203 members, including Coca-Cola, Gap, and Heineken. Yet, analysis by the disclosure specialist CDP still finds that over one-third of companies are failing to reduce and possibly even increasing their water withdrawals. That’s despite cumulative risks of $301bn identified by those companies that report to it.

What is needed now is to link local actions to robust global targets and disclosure that can accelerate and scale systemic change

Both Facebook and PepsiCo use the World Resources Institute’s Aqueduct Water Atlas to assess which of its sites face substantial water risks. (PepsiCo’s publicly available submission to CDP reveals 99 such sites, accounting for more than one fifth of its total). PepsiCo is also one of 97 private-sector members of the Alliance for Water Stewardship, which provides a universal standard for designing and implementing good water stewardship projects. The U.S. beverage giant has committed to adopt the standard in all its high-water risk areas by 2025. Facebook, meanwhile, uses an independently verified accounting methodology developed by the World Resources Institute to measure the impact of its water restoration projects.

“What is needed now is to link local actions to robust global targets and disclosure that can accelerate and scale systemic change,” says Joe Phelan, who directs the operations of the World Business Council for Sustainable Development in India.

Phelan cites a list of top 10 action areas for business relating to water sustainability (published as part of WBCSD’s recent Vision 2050 strategy). These include establishing appropriate water targets, and strengthening corporate disclosure of water-related dependencies and impacts.

During World Water Week, CDP launched a first-of-its-kind tool to help brands assess the potential impact of their portfolios on water resources and water security. The Water Impact Index can also be used by investors to evaluate water-related risks in their portfolios (note: risk levels in the textile, clothing, pharmaceutical, and farming sectors are judged “critical”). PepsiCo will be alert to a research note by UK bank Barclays back in June, which maintained that the global consumer staples sector faces a $200bn impact from water scarcity.

The most obvious overlap between net zero and water-positive commitments is at a practical level. Natural disasters caused by climate change manifest themselves through water nine times out of 10 – be it rising sea levels caused by melting icecaps, floods due to freak storms, or severe drought when aquifers dry up and springs run dry. On the flipside, investment in areas such as wetland conservation or the restoration of coastal seagrasses (so-called seaforestation) can have the dual effect of making water systems more resilient while also curbing climate change. As PepsiCo’s chief sustainability officer Jim Andrew succinctly puts it: "Water scarcity is directly linked to the climate crisis.”

Drawing on insights from World Water Week, the International Water Management Institute pulls out five key takeaways. The last cites the need to “amplify the discussion” beyond the water community. If ever there was a role for brands, it’s that.

Pandemic deepening pay gap

For years, diversity has been a nice-to-have. Brands make commitments and wax lyrical about the benefits of inclusion (which are multiple), but, as long as no active discrimination is occurring, they are essentially left to their own devices.

The outcomes of such voluntarism are only too clear. The scene in the UK provides a case in point. New research released by the New Street Consulting finds that pay for FTSE 100 female directors is a staggering 73% less than their male counterparts. The pay gap points to an opportunity gap more than straight wage discrimination: nine in 10 (91%) female board members are non-execs rather than execs.

The latest annual Green Park Business Leaders Index reveals similar findings, concluding that non-exec roles are “less likely to lead to the C-suite roles”. Only around one in eight (12.2%) of the top three executive roles (CFO, CEO, and chair) in FTSE 100 companies are currently occupied by women.

Under-represented groups have been hit disproportionately hard by the pandemic, a reality found to be true in more than half (55%) the companies recently surveyed by workforce solutions specialist KellyOCG. Yet, a small minority are flipping the trend, a group defined by KellyOCG as “vanguards”. The survey finds that vanguard companies are nearly twice as likely as laggards (67% v 35%) to be actively executing strategies for diversity, equality and inclusion (DEI). In practice, this translates into ongoing career support for women and individuals from minority groups, DEI training and leader-oriented incentives for leaders, and clear channels for reporting discrimination.

It is not just internal comms that matters. Increasingly, brands are under pressure to inform regulators and investors about their progress on diversity, especially in the U.S. Last November, for example, new rules from the Securities and Exchange Commission (SEC) obliged companies to disclose “material” workforce information. Yet 57% of companies still include no quantitative metrics in their DEI statements, according to a study by Stanford Business School back in May. Democrats in the new Biden Administration are now putting pressure on the SEC to tighten its requirements.

Such calls follow the SEC’s recent approval of new rules from Nasdaq that oblige companies listed on its exchange to have at least two diverse board members, plus a board-level diversity committee (or to explain why not). In a similar move, New York’s Department of Financial Services wrote a 3,800-word letter requesting banks operating in the city “to make the diversity of their leadership a business priority and integrate it into their corporate governance”. Citing evidence from consultancy McKinsey on the positive link between diversity and profitability, the city’s banking regulator says it “strongly encourages” banks to disclose DEI data.

BlackRock has clarified boardroom diversity as one of its key ‘stewardship’ priorities

Pressure to provide consistent, comparable DEI data suggests a growing awareness on the part of investors that diversity rates affect the bottom line. Last year, BlackRock clarified boardroom diversity as one of its key “stewardship” priorities, for instance. Legal & General Investment Management, meanwhile, the largest fund manager in the UK, has given U.S.-based S&P 500 and FTSE 100 companies until January 2022 to have at least one Black, Asian or other ethnic minority on their boards.

Failure to do so will see the UK fund manager vote against the re-election of their nomination committee chairs. California-based public corporations are required under law to achieve board diversity targets by 2023.

Brands are often reluctant to go public with their DEI performance for fear of criticism. Yet, admitting shortcomings is not a sign of failure, writes the U.S. writer and activist Simran Jeet Singh in the Harvard Business Review. Instead, he argues, “doing so demonstrates a willingness to reflect and a commitment to move forward with a revised plan of action”. Anything else is tokenism.

 

World Water Week  SDG6  water security  PepsiCo  Facebook  WaterAid  CEO Water Mandate  WBCSD  diversity and inclusion  gender pay gap  BlackRock