Friday, September 23, 2011

Sustainable influences and water risks

Part I: Pension fund influence on water issues

Count a major pension fund as the latest group to "influence" a corporation's sustainability program.

Perhaps more noteworthy is what appears to be the fast-growing sector in the environmental risk reporting arena: water.

CalSTRS is the California State Teachers' Retirement System and the lesser known of California's two major pension funds (Calpers being the other). Sysco announced this week it agreed to a set of new environmental strategies proposed by CalSTRS.

Influencing corporate policy and governance is a big part of large shareholder group actions, aside from picking the right stocks. Until recently, these demands usually focused on ensuring a company focused on making profits and, say, avoiding ventures in high-risk countries.

Perhaps more influenced by legal and financial exposures than noble intentions, companies are adding more and layers to their sustainability policies. And large shareholders like CalSTRS are demanding more environmentally-related risk disclosures from a range of market sectors, such as for insurance companies as highlighted here.

CalSTRS submitted five environmental proposals to Sysco, but only two were adopted. Besides the water one, the other approved policy involved sustainable agriculture, which makes sense since the company is a food service industry leader.

There is room for debate on whether these adoptions count as a major win for CalSTRS, especially given the number of global companies that have voluntarily adopted water-risk strategies and Sysco should have a sustainable agriculture policy anyway.

Growing sector
The water-risk disclosure is quickly gaining strength, thanks in large part to a global non-profit organization essentially forcing companies to report full disclosure of their climate change risks and exposures.

First proposed in 2009 as a pilot effort by the Climate Disclosure Project, water risk management is now a major new reporting segment for the CDP. The CDP is about to send out its second major water-risk questionnaire to global companies.

The 2010 CDP water report is somewhat predictable: Most responding companies said stable, clean water supplies and access to these supplies are critically important. Nearly 90 percent of the responding companies said they already had developed water strategies and plans, but 60 percent had specific targets. Again, this makes sense since the CDP issued its questionnaire primarily to companies with some level of water-related risk and exposure. (Note: water risks also include exposure to floods!)

This area of environmental disclosure is still in its infancy - in terms of its true "impact" on the environment. As the CDP report reveals, many companies are unaware of their true risk to such critical issues as water supply chain management. In places like California, this means they haven't looked thoroughly at long-term risks associated with potential water shortages.

As has happened in the sustainability "movement" among corporations, it will take a few more years before any true "meat" is placed on the bone for water-risk reporting and true change occurs. While companies like WalMart are considered visionaries with regard to forcing real change in "greening" their products and supplies, these changes evolved after several years of "forced" disclosures and heavy lobbying by environmental groups.

Next up will be how public relations professionals should prepare for this next "hot" topic of sustainability reporting - water-risk management.

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