Corporate Water Risk: A Critique of Prevailing Best Practice

Abstract

This paper considers corporate water risk from the perspective of company disclosure. An empirical study, it reviews 6 years' disclosure for 58 companies in the global consumer staples sector. Drawing on a conceptual framework of institutional theory and resource dependence, it examines the disclosed yardsticks by which multinational companies measure their management of water risk. The first empirical study of its kind, it suggests that companies target future improvements that are generally less aspirational than their historic achievements. This appears to be a function of diminishing marginal returns on efficiency investment, exacerbated by a rational reluctance to venture beyond the 'fence line'. The evidence suggests that corporate water risk is increasingly viewed as a political rather than operational issue within the disclosure matrix. Current perceptions of best practice are entrenching a status quo that is fundamentally unfit for purpose given the scale of the challenges that need to be addressed over the rest of this decade, and beyond.

What Constitutes Contemporary Corporate Water Accounting? A Review from a Management Perspective

“…In drought, water sources that are usually reliable can be in short supply (SustainAbility, ). Hence organizations that rely on a certain quantity or quality of water to support their operations can have their activities brought to a halt (Money, ; Romer, ). This highlights the short‐term imperative of corporate water management.…”

“…One area in which the literature shows great interest is the notion of water risk within business (Barton, ; Schulte et al ., ; UNEP, ). The implication is that a water accounting system will reveal risks (and opportunities) in an informed, systematic way rather than management having to address risks randomly (Money, ). Some, such as Ernst & Young (), highlight the need to focus on risk for water‐intensive sectors including agriculture and forestry, food and drink, high‐tech companies, mining, pharmaceuticals and power suppliers.…”

Corporate Water Risk: Investor Tolerance of the Status Quo

“…Perceptions of relative salience may contribute to investors effectively abrogating their sense of responsibility in influencing corporate behaviour on water risk, while simultaneously taking a more activist position on issues where they regard their relative salience to be much higher, such executive remuneration. It would also help explain the why the status quo has endured for corporate water risk disclosure that is unfit for purpose (Money, 2014). Separately, whether or notitresults in investors over-weighting a probable risk event as the literature suggests, has not been tested empirically in this paper.…”

Unlocking the “Prisoner’s Dilemma” of Corporate Water Stewardship in South Africa—Exploring Corporate Power and Legitimacy of Engagement in Water Management and Governance

“…Whether these outputs really were what they were originally envisioned to be, how they differed from operational measures corporations would have needed to take anyway, and what the transaction costs of those would have been, was another matter, however (see also [21]). On the one hand, the projects were still experimental pilots, which should have enabled learning even if the original goals were not met.…”