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Ceres Releases Fourth-Annual Food Industry Water Shortage Study

Ceres Reports

Ceres, a nonprofit organization focused on sustainability efforts in the capital markets, released its fourth annual report on how the food industry is tackling water shortages and managing global freshwater resources.

Photo Courtesy Ceres Reports

While the report showed overall progress across food and agribusiness industries, it also highlighted that there’s still a long way to go, especially for meat producers.

The food industry uses more than 70% of the global freshwater supply to grow crops, feed livestock, and produce goods to feed 8 billion people on our planet. In the U.S., significant water shortages have taken place in the Colorado River Basin, California, and other areas in the Southwest. The Colorado River flows have declined by nearly 20% on average compared to the 1900s and experts forecast that a 50% decline could take place by the end of this century.

Ceres’ 2021 study Feeding Ourselves Thirsty evaluated 38 companies across the industries with the highest exposure to water risks: agricultural products, beverages, packaged foods, and meat. Among the companies analyzed were some of the largest U.S.-based publicly traded companies, as well as a few large private and non-U.S. firms. They were evaluated on four areas of water management: targets, risk assessment, governance, and implementation.

Key findings were that 71% of firms consider water risks as part of their major business planning activities and investment decisions. This was an improvement from 58% in 2019. In addition, more than half of the companies (53%) tie executive compensation to water and sustainability performance, which was an increase from just 33% in 2019. And 87% of companies provide educational support to farmers to encourage sustainable practices (up from 70% in 2019).

Among the top 10 were some of the largest beverage and packaged food companies, scoring between 69 and 90 points out of a benchmark of 100. Some of the best water managers were beverage makers Coca-Cola (score of 90) and Anheuser-Busch InBev (score of 83), followed by packaged food manufacturers Unilever (score of 83) and Nestle (score of 80).

“We are pleased to be this year’s top scoring company,” said Michael Goltzman, vice president, global policy & sustainability at Coca-Cola. “Our 2030 Water Security Strategy focuses on increasing water security for our business, supply chain, and in the communities where we operate. Importantly, we prioritize our investments based on an in-depth understanding of water-related risks at a watershed level, contextualizing our targets to address local risks while focusing on the water used to produce our agricultural ingredients.”

However, while progress was made across the board, the study also found that “many companies simply aren’t moving quickly enough to ensure sustainable water supplies.” It found that the average company score was just 45 points out of 100. The meat sector especially is lagging, with an average score of 18.

“Overall, companies do not have sufficient water risk management practices in place across categories of water management, including governance, risk assessment, targets and implementation,” the study concluded. “This is exacerbating their exposure to threats across their supply chains. The financial fallout of these reputational, regulatory, and physical risks has become increasingly evident.”

Photo Courtesy Ceres Reports

Among the worst performers were beverage firm Monster Beverage (0 score), as well as meat producers Pilgrim’s Pride (4 score) and Sanderson Farms (6 score).

The study found that only a small number of companies disclosed a supplier policy with specific expectations on water use and quality. Even fewer defined protocols of non-compliance.

Also, less than half of the companies did robust water risk assessments (including water quality) that focus on agricultural supply chains. Only a handful of firms had water use reduction targets for their key regions and only 12 focused their support on farmers growing key ingredients in high-stress water areas.

Some of the water risk drivers include increased carbon emissions, growing competition, aging regulations and infrastructure, and water pollution.

These translate into financially material business risks, such as higher price volatility of ingredients, inconsistent supply, reputational risks, regulatory and litigation risks, as well as operational risks such as reduced crop or livestock production, higher transport costs, and stranded assets. This in turn can lead to decreased revenue, increased costs,  and less access to capital.

“Investors can use the findings from this benchmark to understand the water management practices of their portfolio companies,” concluded the report. “For institutional investors, and universal asset owners specially, water risks in the food sector are both material and systemic in nature. For investors who take an active ownership approach on ESG and water issues, these findings can support stewardship efforts to change corporate practices and policies, improve investment returns, and create long-term investment value.”

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