The Tides are Turning: Navigating the Shifting Sands of Environmental Compliance
In the ever-fluctuating world of environmental regulations, one thing remains constant: the need for organizations to stay afloat amidst the churning waves of change. As the tides of legislation and industry standards ebb and flow, businesses find themselves navigating uncharted waters, tasked with the challenge of adapting their practices to align with the evolving landscape.
The truth is, the environmental regulatory ecosystem is a dynamic and complex web, with new rules and requirements emerging at a dizzying pace. Just when you think you’ve got a handle on the latest mandates, the goalpost shifts, leaving organizations scrambling to stay compliant. It’s a bit like trying to keep up with the latest social media trends – by the time you’ve mastered one platform, another has already taken the world by storm.
But fear not, my fellow captains of industry! In this article, we’ll dive deep into the ever-changing tides of environmental regulations, equipping you with the essential knowledge and strategies to not just survive, but thrive in this uncharted territory. Together, we’ll navigate the choppy waters of compliance, uncover the hidden challenges, and discover the untapped opportunities that lie ahead.
Charting the Course: Understanding the Evolving Landscape of Environmental Regulations
As the Schneider Electric team aptly points out, the primary focus of many ESG (Environmental, Social, and Governance) disclosure requirements has traditionally been centered around greenhouse gas emissions. And while this metric is undoubtedly crucial, it’s not the only sustainability risk that organizations need to manage in today’s changing environment.
Another risk that has been quietly bubbling beneath the ESG reporting landscape is water risk. This issue poses the same severity as greenhouse gas emissions and is deeply interlinked with the climate crisis. Water risk, as defined by the United Nations CEO Water Mandate, is the possibility of an entity experiencing a water-related challenge, such as water scarcity, water stress, flooding, infrastructure decay, or drought.
Interestingly, this risk can be further categorized into three distinct types: physical, regulatory, and reputational. Physical risk reflects a river basin’s level of scarcity, flooding, water quality, and accessibility. Regulatory risk reflects how water is managed in a particular area and the stability and effectiveness of that area’s regulatory environment. Lastly, reputational risk reflects stakeholders’ perceptions of a company with respect to its interaction with local water resources.
The sources of these water risks can also be operational, stemming from a company’s own operations, products, or services, or basin-related, associated with the basin conditions in which a company’s sites are located. According to an analysis by Ceres, more than 50% of companies listed on the S&P 500, Russell 3000, MSCI World, and MSCI EM indices are exposed to medium to high water risks.
Navigating the Choppy Waters of Mandatory Disclosures
As the importance of water risk disclosure continues to grow, the regulatory landscape is also evolving. While greenhouse gas emissions have been the primary focus of mandatory reporting requirements, the tide is turning, and water-related disclosures are starting to gain traction.
As of June 2022, just two G20 members, the EU and the UK, are beginning to mandate disclosure on water-related topics. In the US, the only mandatory water disclosure requirement is the SEC’s climate ruling, which mandates that companies must disclose the percentage and location of their assets in flood hazard areas, the percentage book value and location of assets in regions with high or extremely high water stress, and their total water usage in regions with high or extremely high water stress, including the amount of water withdrawn.
The Asia-Pacific region is also starting to set its own water disclosure mandates. For example, India requires the top 1,000 listed companies by market capitalization to report on a defined set of water usage and intensity metrics, while China requires companies with high levels of pollution to report control and management-related data.
However, the mandatory disclosure seascape for water remains fragmented, with many regions still lagging behind. This has led to a rise in voluntary water risk disclosures, primarily through platforms like CDP (formerly the Carbon Disclosure Project). According to CDP, over the last five years, there has been a 20% yearly average increase rate in water disclosures.
One of the main drivers behind this voluntary trend is investor pressure. In 2021 alone, the TCFD-aligned CDP water questionnaire was distributed to more than 6,000 companies on behalf of 680 financial institutions that collectively manage USD 130 trillion in assets. As the tide of investor scrutiny continues to rise, organizations can no longer afford to ignore the importance of water risk disclosure.
Charting a Course Towards Sustainable Water Stewardship
While the mandatory disclosure landscape for water may be fragmented, the benefits of proactive water risk reporting and management are clear. A study by McGill University and the consultancy firm Milani found that between 2012 and 2016, companies that regularly disclosed their water risk through CDP ranked 19 percentiles higher in their ability to access capital. Moreover, the cost of inaction on water risk could be nearly 5 times greater than the cost to address it, as reported by CDP in 2020.
One shining example of a company that has embraced this proactive approach is the Ford Motor Company. Ford has been disclosing water risk to CDP since 2010, driven by increasing water scarcity, and has set a target to have zero water withdrawals in manufacturing by 2050. To achieve this target, the company plans to implement a reverse osmosis system in one of their stamping and assembly plants in Mexico, despite the hefty price tag.
But Ford’s commitment to water stewardship doesn’t stop there. The company has also worked with its suppliers to set withdrawal reduction targets throughout its supply chain, helping its suppliers save roughly 18 million gallons of water between 2021 and 2023. This holistic approach not only positions Ford as a sustainability leader in the automotive industry but also highlights the tangible benefits of such initiatives, both in terms of minimizing potential financial impacts and fostering positive environmental practices throughout the value chain.
Charting a Course Towards a Sustainable Future
As the tides of environmental regulations continue to shift, the time has come for organizations to embrace a proactive, comprehensive approach to water risk management and disclosure. The risks are too great, and the potential benefits too significant, to ignore.
Inland Waters Inc., a leading provider of water treatment and environmental services, is poised to be your trusted guide as you navigate these uncharted waters. Our team of experts understands the complexities of the evolving regulatory landscape and can help you identify and disclose your material water risks, develop a robust water stewardship strategy, and establish site-level and company-wide water targets.
Remember, the future of our planet depends on the actions we take today. So, let’s embrace the changing tides, harness the power of innovation, and chart a course towards a more sustainable future – one where water risk is not just a challenge, but an opportunity to make a meaningful difference.
