Executive summary

Meanwhile, agriculture remains the heaviest user of fresh water supplies, responsible for approximately 70% of the world’s fresh water consumption.

Traditionally, businesses have focused on their direct water consumption, although many have failed to recognise the importance of understanding and managing risks throughout their supply chains. Companies who fail to manage supply chain water risks may see impacts on their performance such as increased input prices, disruptions in supply or reputation damage.

These risks are particularly relevant to companies in the food, beverage, apparel, retail and agricultural products sectors, who are the focus of this research and related collaborative engagement. Despite the risks, little is known about their extent and materiality. This stems from the complexity in agricultural supply chains, the localised and disperse nature of water risks and the limited availability of data, which prevent simple analysis of company exposure.

To improve understanding of the issues, research has been conducted by both the WWF and PwC Germany. WWF focused on “which crops are at risk and where?” and found that 25 crop and country pairs are most exposed. PwC was tasked with answering “who sources what from where?” and was able to use input-output modelling to provide a best estimate on agricultural supply chain water risks for a selected portfolio of investee companies.

The results of the research show that companies in the target sectors are indeed reliant on agricultural commodity raw materials from regions facing high levels of water stress, despite significant differences between the companies, input crops and their sourcing location. These results further highlight the need for a nuanced and localised response. More specifically, results show:

• A strong correlation between individual company revenue and estimated water consumption in water scarce regions
• Significant exposure to some crop-country combinations, but limited exposure to others
• A large difference between the average and median water consumption of the companies in the universe
• Agricultural products, food retail, packaged foods & meats and soft drinks companies are the biggest users of water in scarce regions
• Apparel, luxury goods, brewers and distillers & vintners had lowest average consumption in water scarce regions
• Some well-known consumer facing brands are strong performers on company risk management for both direct and supply chain operations, but overall the general performance across the universe of companies was poor.

Going forward, there is a clear case for increased dialogue between companies and investors around these issues. For companies, a comprehensive and straightforward framework for managing risks is key. This report highlights the WWF water stewardship steps as one tool to guide companies in the move towards best practice. It further offers a set of questions for companies to answer in order to demonstrate their awareness and management of these risks to investors. These asks to companies are general in nature but draw on the insights presented in the research. As investor and company sophistication grows, it is expected these focus questions for engagement will be further developed.