Global investors urge food firms to address rising water risks

Investors managing more than $2.6trn in assets have sent joint letters to 15 international food and drink companies amid growing concerns over water security and pollution.

The letters, which were sent out to the likes of Kraft Heinz Co., Monster Beverage and Dr Pepper Snapple Group, were coordinated by sustainability organisation Ceres, which identified the 15 recipient companies as “poor performers” on water management issues.

“Many food sector executives are holding onto a mistaken view that water will forever be cheap and limitless,” said Ceres senior water programme director Brooke Barton. “But the era of cheap, plentiful water is coming to an end, and, more than ever, food companies need to address it.”

Oversight

In a recent Ceres report which evaluated 31 publicly traded US companies, 90% cited water scarcity and treatment as a risk, yet only 30% mentioned that water risks were part of major business investment and incentives.

A sample letter sent out by Ceres states: “We…believe that global water risk management is a critical aspect of financial risk oversight in the food and beverage sector…these threats can, and already are having profound near-term business impacts on food and beverage companies that are disrupting operations and supply chains, increasing capital expenditures and operating costs, and constraining revenue growth.

“As concerned shareholders with long-term investment strategies, we…seek increased transparency and disclosure about your exposure to water risk, as well as the plans, strategies and progress you are making in mitigating the company’s exposure to these issues.”

The food sector, which uses 70% of the world’s freshwater supplies, is especially at risk of water scarcity due to its use of water as both a direct ingredient and as an input to agricultural production. Factors including growing competition for water, weak regulations, aging water infrastructure, water pollution and climate change are having increasingly adverse effects on the food industry creating a need for better water management.

California drought

The letters were sent at a time where areas such as California are experiencing its worst recorded drought in history. In light of this, the World Bank expects water scarcity to affect 2.8 billion people directly by 2025.California Mayor Eric Garcetti last week issued the use of 96 million shade balls to prevent the loss of more than 300 million gallons of water each year and save the area around $250m.

Archer Daniels Midland - headquartered in California - is one of the companies to have received a letter.

2015 Investor Letter

View the full list of signatories here and the list of companies that received the letter here.