Which companies are going to thrive in a carbon-constrained future? It’s a critical question that the capital markets are currently ill-equipped to answer. Citigroup Investment Research, in partnership with WRI’s Capital Markets Research Team, looked at the risks and opportunities that climate change is creating for business. The findings were distributed to Citigroup’s real client base, including the largest investment and mutual funds in the world. When Citigroup, the world’s largest financial services company, says there are opportunities to make money solving climate change problems, investors will listen and other financial institutions will be inspired to follow. This is an example of the power of market-based strategies to steer business investment and innovation toward solutions to environmental and development challenges.
Brazil’s economy has been booming. During the past decade, it grew from the ninth to the sixth-largest in the world. While this growth has brought many socioeconomic benefits, it’s come with a downside: significant environmental impacts. Brazil has the highest rate of deforestation worldwide, while pollution threatens the country’s drinking water supply. Despite a decrease in national greenhouse gas emissions of late, agriculture emissions and energy demand are still rising.
Extreme weather and climate events such as storms, floods, droughts and wildfires visibly impact not only our communities and livelihoods, but also our resources and related infrastructure. In its latest report, U.S. Energy Sector Vulnerabilities to Climate Change and Extreme Weather, the U.S. Department of Energy (DOE) warns that domestic energy supplies are likely to face more severe disruptions given rising temperatures that result in extreme weather events. The report accurately outlines the risks climate change poses to the energy sector in the United States and serves as a wake-up call on this critical issue, which I highlighted in my testimony before the Energy and Power Subcommittee of the House Energy and Commerce Committee earlier this year.
Few countries are unaffected by China’s overseas investments. The country’s outward foreign direct investments (OFDI) have grownfrom $29 billion in 2002 to more than $424 billion in 2011. While these investments can bring economic opportunities to recipient countries, they also have the potential to create negative economic, social, and environmental impacts and spur tension with local communities.
To address these risks, China’s Ministry of Commerce (MOFCOM) and Ministry of Environment (MEP)—with support from several think tanks—recently issued Guidelines on Environmental Protection and Cooperation. These Guidelines are the first-ever to establish criteria for Chinese companies’ behaviors when doing business overseas—including their environmental impact. But what exactly do the Guidelines cover, and how effective will they be? Here, we’ll answer these questions and more.
Supply chains are a major contributor to the environmental footprint of multinational companies, particularly in their use of water. By working with suppliers to decrease water-related risk, large companies can help reduce pressure on the world’s over-stretched water resources.
In July 2012, global food service retailer McDonald’s added a question to the Environmental Scorecard it distributes to its top suppliers. The addition requested that suppliers determine the water stress associated with their facilities’ locations. WRI played a pivotal role in this landmark initiative, providing the Aqueduct water risk mapping tool, which McDonald’s asked its suppliers to use when calculating their water footprints.
Measuring Water Risks
McDonald’s distributes an annual Environmental Scorecard Questionnaire to its top suppliers. The suppliers asked to respond to the water risk question include providers of beef, poultry, pork, potatoes, bakery products, and toys. Incorporating this question into the Environmental Scorecard was an important step in advancing McDonald’s dialogue with its suppliers beyond efficiency to include water risk and overall water stewardship.
The 2012 Environmental Scorecard directed suppliers to, “Use the WRI Aqueduct Tool to determine the water stress of the facility’s location and provide the water stress [level] of the facility’s location.” McDonald’s also urged its top suppliers to use the data they acquire from using Aqueduct to update their environmental management processes to take water risk into account. By the end of September 2012, all 353 of the facilities asked to complete the Aqueduct water risk assessment had done so.
This McDonald’s initiative provides an important precedent for evaluating water-related risk among agricultural producers, who account for 70 percent of water use worldwide.
Making Change Happen: WRI’s Role
WRI’s Aqueduct tool, developed by our Markets & Enterprise Program, allows companies and other organizations to access information on water risks in a given region or area. Our global database uses 12 indicators of water quantity, water quality, and regulatory and reputational issues to calculate water risk around the world.
The practical, straightforward, user-friendly nature of our Aqueduct tool made it possible for McDonald’s to begin assessing water risk across its vast global supply chain. Suppliers survey the data available for their facility’s location, and then choose from a drop-down option that indicates whether overall water risk is low, medium, or high. The Coca-Cola Company, a supporter of the Aqueduct project, vouched for the usefulness and credibility of the maps to McDonald’s, one of its largest customers.
McDonald’s high profile endorsement of the Aqueduct tool and data will help WRI scale our work with companies to address water scarcity challenges worldwide.
The global market for wood and other forest products is changing quickly. The industry has long struggled to address the problem of illegal logging, which damages diverse and valuable forests and creates economic losses of up to $10 billion a year. In some wood-producing countries, illegal logging accounts for 50-90 percent of total production.
But recent developments indicate that we may be turning a corner: Illegal logging rates worldwide have declined by about 20 percent since 2008.
This was the topic on everyone’s minds at the recent Forest Legality Alliance meeting in Washington, D.C. This meeting brought together nearly 100 members and experts representing a wide array of companies, trade associations, NGOs, and governments involved in the harvest, manufacturing, and trade of legally produced forest products.
Investors need to understand a wide variety of business and market risks facing the companies in which they invest. In the 21st century, that includes water risks.
An increasing number of companies are experiencing detrimental water-related business impacts, including operational or supply chain disruptions and property damage from flooding, to name a few. These impacts can be costly--in 2011 they cost some companies up to $200 million--and have caught the attention of investors around the world.
As a result, the movement toward increased Corporate Water Disclosure is gaining speed. The deadline for companies to respond to the CDP 2013 Water Disclosure Questionnaire is six weeks away. To make the reporting process easier, WRI has aligned our Aqueduct Water Risk Atlas with CDP’s water questionnaire. Together, we are providing step-by-step guidance on how to measure and report exposure to water-related risks.