Physical, Regulatory and Reputational Water Risks as Predictors of Water Stewardship among Global Corporations
Date
2016
Authors
Richards, Allison A.
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Abstract
There is growing consensus that the scope and complexity of worsening global water stress and associated physical, regulatory and reputational water risks, require a stewardship approach that involves collective action and community engagement among public and private sectors, NGOs, and communities. Corporate Water Stewardship (CWS) emerges as a strategic approach for companies to mitigate water risks, and many global corporations are publicly disclosing their water risk and responses to initiatives such as the Carbon Disclosure Project’s Investor Water Program. While the Alliance for Water Stewardship (AWS) International Water Stewardship Standard, released in 2014, provides clearly defined guidelines and a six-step process —commit, gather and understand, plan, implement, evaluate, and communicate and disclose— required for CWS, there has been little empirical research on global corporations’ CWS practices and related factors, in particular how reported CWS results relates to physical, regulatory and reputational water risks, and other company characteristics such as revenue, number of employees, number of facilities located in river basins exposed to water risk, sector and the economic classification of the country where the company’s headquarters are located. In this research, I examined full public responses of 327 global corporations (the Full Disclosers) to the 2014 CDP-IWP survey, with the aim of understanding the most important factors related to CWS – and using the AWS Standard as the criteria for CWS. To achieve this aim, I explored four research questions. First, what water risk types (physical regulatory and reputational) are most prevalent among Full Disclosures to the 2014-CD-IWP? Second, how do physical, regulatory and reputational water risks relate to company characteristics? Third, how are the components of CWS practiced by Full Disclosures related to their reported physical, regulatory and reputational water risks? It was hypothesized that physical, regulatory and reputational water risks would explain a significant variance in CWS practice amongst the study participants. The results show that physical water risk was the most prevalent type of risk among companies in the study, followed by regulatory risk, then reputational water risks. Significant relationships were observed between physical, regulatory, and the number of facilities a company had located in river basins exposed to water risk, but not with other company characteristics. For annual company revenue, sector, and the economic status of the country where the company’s headquarters are located, relationships with physical regulatory and reputational risk types were not significant; however, the aggregate of all water risk was significantly related. It was also found that global companies in this research study were engaging in CWS practice to varying degrees: 58% of the 327 companies in the study pursued action in all six AWS steps while 49% took action in four to five steps. Physical and regulatory water risk types significantly predicted and also explained a significant portion of the variance in CWS, while reputational water risk did not. The number of facilities a company had located in river basins exposed to water risk also proved to be a significant predictor of CWS. Annual revenue significantly predicted CWS but only for companies that pursued action in less than six CWS steps, while sector was a significant predictor among companies that pursued action in all six CWS steps. These findings provide insights into CWS practice among global corporations that fully disclosed to the CDP- IWP. These findings can be used to inform policy-makers on how to engage corporations in collaborative and collective actions for sustainable water resources management and governance. The methodology used in this research also have value to companies and water practitioners in setting targets and developing action plans to mitigate water risks.
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Keywords
Water resources management, Environmental management, Sustainability, Corporate Water Disclosure, Corporate Water Stewardship, Sustainable Water Resources, Water Risks