Corporate Water Risk: Investor Tolerance of the Status Quo

Abstract

This paper considers corporate water risk disclosure from the perspective of professional investors. An empirical study, it draws on findings from detailed interviews conducted with Chief Investment Officers and other senior investment professionals at fund management firms in Australia, South Africa, the UK and the USA. It establishes that investors generally regard extant corporate water risk disclosure as unfit for purpose, and explains why investors nonetheless tolerate the status quo. The study draws on a conceptual framework of stakeholder salience, myopia and proximity to describe a 'predictability discount' that exists in terms of investor decision making behaviour in the face of actual or perceived water risk. The extent of this discount is shaped by four temporal conditions: the near past; the distant past; the near future; and the distant future. The research also finds that investors assume companies are more cognisant of water risk than their disclosure implies.

Examining water risk perception and evaluation in the corporate and financial sector: a mixed methods study in Ontario, Canada

“…Based on Risk Theory and its underlying physical, psychometric, sociological, cultural, and organizational theories, cognitive, affective, and socio-cultural factors of risk perception are expected to act like filters shaping water risk perception of CFS practitioners and influencing risk evaluation (dependent variable), i.e., ratings or priorities assigned to different biophysical and social water risks (Sjöberg 2002, Dobbie and Brown 2014, Vasvári 2015. Water risks relevant from a corporate and financial perspective include water quantity (droughts, groundwater depletion, or reduced flows), quality (contamination), regulatory stringency and uncertainty, location-specific water user conflicts (competing users), source sensitivity (groundwater versus surface water), sector-specific risks, and public and media scrutiny (Money 2014b, Sandhu et al 2023.…”

“…A location/proximity variable is useful in examining proximity bias, where, interestingly, an individual may discount the occurrence of water issues in their own sub-watershed due to higher perceived control, hence impacting concern, confidence, risk perception, and assessment (Weber et al 2002, Krewski et al 2008, Money 2014b, Quinn et al 2019. Instead of controlling these sociocultural demographic variables, we empirically examined them as part of our theoretical framework, included as explanatory variables (Mumbi andWatanabe 2020, Siegrist andÁrvai 2020) H12 Gender : Women are expected to have higher water risk ratings than men.…”

The Wealth Effect of Corporate Water Actions: How Past Corporate Responsibility and Irresponsibility Influence Stock Market Reactions

“…The World Economic Forum has ranked water crises as the second most severe risk that the business community faces in terms of impact (Howell, 2013). What makes water risk so critical is that it is not just a subset of environmental concern, but also a critical resource for carrying out business (Money, 2014). Burton (2010) separated water risk into four components: physical, reputational, regulatory and litigation risk.…”

“…Empirical work from the field of water is limited (Kurland & Zell, 2010;Whiteman et al, 2013). Business ethics approaches to water management have primarily adopted case studies or other qualitative approaches, mostly analyzing the extent and quality of water disclosure by firms (Burritt et al, 2016;Kleinman et al, 2017;Leong et al, 2014;Linneman et al, 2015;Money, 2014). A few quantitative studies have explored the quantity of water used (Jeswani & Azapagic, 2011), water footprint assessment (Hoekstra et al, 2016), and water management accounting (Christ & Burritt, 2017).…”

Water management and stewardship : taking stock of corporate water behaviour

“…The solution to that is better disclosure. Alex Money of the University of Oxford, emphasises, based on interviews with chief investment officers (as compared with socially responsible investment personnel), that investors would like companies to 'step away from descriptive, qualitative CSR content ('"fewer glossy photos of poor kids playing next to sprinklers")' to concentrate on 'materiality in their disclosure' with 'data that can be quantitatively evaluated, meaningfully' (Money, 2014). Where companies, especially major corporates, are slow -for whatever reason -to adopt that approach, they risk undermining a key premise of corporate water stewardship, namely that companies are ready to submit voluntarily to protocols and processes for information-sharing as part of greater openness in their dealings.…”