Gaining competitive advantage in a water constrained world CDP US Water Report 2012 On behalf of 470 investors with assets of US$ 50 trillion

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1 Gaining competitive advantage in a water constrained world C US Water Report 2012 On behalf of 470 investors with assets of US$ 50 trillion Report writer 1

2 Contents The world s water management challenge is everyone s business. This requires more than technology and financing, it requires new mindsets and tools, more cooperation and the alignment of networked governance capacities that anticipate the wider and evolving environmental situation. Alcoa C Foreword Paul Simpson, CEO 3 Executive Summary 4 Investor Signatory List 6 Seizing Water-Related Opportunities Creates Business Value Will Sarni, Director and Practice Leader, Deloitte 9 S&P 500 Insight 10 Gaining Competitive Advantage in a Water Constrained World 12 Company Perspective Peter Swinburn, President and CEO, Molson Coors 19 Appendix I: Summary of Key Indicators 20 Appendix II: Table of Response Status and Sector by Company 22 Appendix III: Report Methodology 26 2

3 CEO Foreword C has pioneered the only global system that collects information about corporate behaviour on climate change and water scarcity, on behalf of market forces, including shareholders and purchasing corporations. Water is the lifeblood of the global economy. It is the element that binds us together, creating deep and complex interdependencies between companies, communities and natural ecosystems and the pressure is growing for companies to build long-term resilience to water scarcity and flooding into their business. As the Chinese proverb states: Not only can water float a boat, it can also sink it. Water can be a significant driver for innovative and sustainable economic prosperity but its mismanagement can result in significant business failure. Analysis indicates that current business as usual water management practices and levels of water productivity will put at risk approximately US$63 trillion, or 45 percent of the projected 2050 global G (at 2000 prices), equivalent to 1.5 times the size of today s entire global economy. 1 Business and economies globally have already been impacted by the increased frequency and severity of extreme water-related events. Poor harvests due to once-in-ageneration droughts have this year rocked the agricultural industry, with the price of grain, corn and soybeans reaching an all time high. Last year, Intel issued a US$1 billion profit warning and the Japanese automotive industry were expected to lose around US$450 million of profits as a result of the business interruption floods caused to their Thailandbased operations and value chain. Encouragingly additional research exploring the links between water and economic growth shows that every US$1 invested in water infrastructure can deliver nearly US$5 of wider economic benefits over the long term, in addition to social and environmental benefits. 2 This year s C US Water Disclosure Report is a call to action for every company to treat water with the strategic importance it deserves; to consider the role they should play in tackling water challenges and to provide the leadership required to build a more resilient future. C has pioneered the only global system that collects information about corporate behaviour on water security and climate change, on behalf of market forces, including shareholders and purchasing corporations. Backed by 470 institutional investors, C s goal of enabling better decision making by providing investors, companies and governments with high quality information on how companies are managing their response to natural resource constraints, has never been more important. Accounting for and valuing the world s natural capital is fundamental to building economic stability and prosperity and the global economy will favor businesses that take a pro-active approach to water stewardship. Companies that transform their business and work to safeguard valuable water resources have the potential for both short and long-term cost savings, sustainable revenue generation and a more resilient future. Paul Simpson CEO Carbon Disclosure Project 1: Finding the blue path to a sustainable economy, March 2011, a report by Veolia Water and IFPRI 2: Exploring the links between water and economic growth, June 2012, a report for HSBC carried out by Frontier Economics 3

4 Executive Summary 4 Introduction The 2012 C Water Disclosure information request was formally supported by 470 investors representing US$50 trillion in assets. Responses received from companies included in the Standard & Poor s S&P500 Index provide valuable insight for investors into how companies are operating in a water-constrained world. Globally, water availability has declined significantly since 2000 and this trend is expected to continue. 3 The persistent drought in the US has highlighted the critical role water serves in the economy as a key resource in agriculture, energy production and manufacturing. The summer of 2012 saw more than 2,000 counties in 26 states, primarily in the Midwest, declared natural-disaster areas - the biggest declaration ever by the US Department of Agriculture. 4,5 Approximately 80% of agricultural land has been affected marking this as the most extensive drought since the 1950s with wide-spread repercussions well beyond the country s borders. 6 The recent drought is unlikely to be the last; unusual patterns over the past few years suggest that extreme weather is expected to continue and the level of severity is likely to intensify due to climate change. 7 As water scarcity and competition for water continue to rise, companies face increasing physical, regulatory, and other waterrelated risks. Understanding the vulnerability of business to water-related issues should therefore be a priority for all companies. In 2012, for the first time, selected US businesses listed on the S&P 500 were invited to respond to the third annual C Water Disclosure information request. Targeted companies were those that operate in sectors that are water-intensive or exposed to water-related risks. A 41% response rate among targeted US companies is respectable for the program s first year, representing 141 companies of the 345 invited, though given the weight of investor interest and the high profile of water-related issues in the country we would expect a significant increase in future years. Response rates vary widely among sectors, ranging from 22% in the Energy sector to 62% in the Consumer Staples sector, and follow a similar pattern to those for the Global 500 (now in its third year). This report is based on analysis of 140 responses received by August 6, 2012 and investigates how a number of companies are turning some of the most complex waterrelated problems into opportunities to create value. 3: Assuming current projections of population and economic growth 4: states-as-drought-sears-midwest.html. 5: 6: 7:

5 Starting this year, our first year participating in the water disclosure project, we will be publically reporting our water consumption. We see this as an important step to understanding our societal impact from water usage as a corporation and as an opportunity to create a baseline for future improvement. Sherwin-Williams Key findings The need to address water-related risks is both clear and immediate Almost half (45%) of this year s respondents have experienced water-related detrimental impacts in the past five years such as business interruption and property damage from flooding, with associated financial costs as high as US$200 million. Furthermore, 63% of respondents report exposure to water-related risk with the majority expected to impact US businesses either now or within the next five years. Awareness and management of supply chain waterrelated risk is low 36% of respondents are unable to state whether or not their supply chain is exposed to water-related risk, far more than the 6% of respondents who are unable to identify whether or not they are exposed to risk in their direct operations. Furthermore, only 23% of respondents require key suppliers to report on water use, risks, and management suggesting that the full extent of vulnerability to supply chain risk is not well understood. Water does not receive the boardroom attention it deserves The majority (81%) of respondents have a water policy, strategy or management plan but only 52% have set concrete quantitative goals and targets and fewer still (29%) afford these policies, strategies and plans board-level oversight. This is surprising given the extent and immediacy of the risks companies face. Almost two thirds of companies have identified waterrelated opportunities, most of which are reported as near-term 64% of respondents report that water-related issues offer substantial opportunities for their business, including cost reductions associated with increased water efficiency, revenue from new water-related products or services and improved brand value. Encouragingly, US respondents identify as many opportunities as they do risks with 81% of these opportunities having the potential to generate a substantive change to businesses now or within the next five years. Setting the stage: Turning risks into opportunities Companies are pursuing water stewardship strategies that not only build business resilience but also turn risk management responses into a source of competitive advantage, thus marking the theme of this inaugural US report. Successful companies will likely be those that view water strategically and capitalize on opportunities to transform their business. Developing a water stewardship strategy can aid companies in identifying opportunities to innovate across their value chain thus gaining competitive advantage through improved resource efficiency, brand value and revenue growth. 5

6 2012 Signatory Investors 6 Signatories 470 financial institutions with assets of US$50 trillion were signatories to the 2012 C Water Disclosure information request dated February 1, 2012 Aberdeen Asset Managers ABRAPP - Associação Brasileira das Entidades Fechadas de Previdência Complementar Achmea NV Active Earth Investment Management Acuity Investment Management Addenda Capital Inc. Advanced Investment Partners Aegon N.V. AEGON-INDUSTRIAL Fund Management Co., Ltd AK Asset Management Inc. Alberta Investment Management Corporation (AIMCo) Alberta Teachers Retirement Fund Alcyone Finance AllenbridgeEpic Investment Advisers Limited Allianz Elementar Versicherungs-AG Allianz Global Investors Kapitalanlagegesellschaft mbh Allianz Group Altira Group AmpegaGerling Investment GmbH Amundi AM APG Group Apsara Capital LLP EX LLC Arisaig Partners Asia Pte Ltd ASB Community Trust ASM Administradora de Recursos S.A. ASN Bank Assicurazioni Generali Spa ATI Asset Management Australian Ethical Investment Limited AustralianSuper Avaron Asset Management AS Aviva Investors Aviva plc Baillie Gifford & Co. BaltCap Banca Monte dei Paschi di Siena Group Banco Comercial Português S.A. Banco do Brasil S/A Banco Nacional de Desenvolvimento Econômico e Social - BNDES Banco Popular Español Banco Sabadell, S.A Banco Santander Banesprev Fundo Banespa de Seguridade Social Bank of America Merrill Lynch Bank Vontobel Bankhaus Schelhammer & Schattera Kapitalanlagegesellschaft m.b.h. BankInvest Banque Degroof Banque Libano-Francaise Barclays Basellandschaftliche Kantonalbank BASF Sociedade de Previdência Complementar Bâtirente Baumann and Partners S.A. Bayern LB BayernInvest Kapitalanlagegesellschaft mbh BBC Pension Trust Ltd BBVA Bedfordshire Pension Fund Beetle Capital BEFIMMO SCA Berenberg Bank Blom Bank SAL Blumenthal Foundation BNP Paribas Investment Partners Boston Common Asset Management, LLC BP Investment Management Limited British Airways Pension Investment Management Limited British Columbia Investment Management Corporation (bcimc) BT Investment Management CAAT Pension Plan Cadiz Holdings Limited Caisse de dépôt et placement du Québec Caisse des Dépôts Caixa Beneficente dos Empregados da Companhia Siderurgica Nacional - CBS Caixa de Previdência dos Funcionários do Banco do Nordeste do Brasil (CAPEF) Caixa Econômica Federal California Public Employees Retirement System California State Teachers Retirement System California State Treasurer Calvert Investment Management, Inc Canada Pension Plan Investment Board Canadian Labour Congress Staff Pension Fund CAPESESP Capital Innovations, LLC CARE Super Pty Ltd Catherine Donnelly Foundation Catholic Super CBRE Cbus Superannuation Fund CCLA Investment Management Ltd Celeste Funds Management Central Finance Board of the Methodist Church Ceres Change Investment Management Christian Brothers Investment Services Christian Super Christopher Reynolds Foundation Clean Yield Asset Management ClearBridge Advisors CM-CIC Asset Management Colonial First State Global Asset Management COMGEST CommInsure Commonwealth Bank of Australia Commonwealth Superannuation Corporation Compton Foundation, Inc. Concordia Versicherungsgruppe Connecticut Retirement Plans and Trust Funds Co-operative Financial Services (CFS) Daegu Bank Daesung Capital Management Daiwa Asset Management Co. Ltd. Daiwa Securities Group Inc. Dalton Nicol Reid de Pury Pictet Turrettini & Cie S.A. DekaBank Deutsche Girozentrale Delta Lloyd Asset Management Deutsche Bank AG Development Bank of Japan Inc. Dexia Asset Management

7 1 C Water Disclosure Signatories & Assets (US$ Trillion) Against Time Signatory Investor Breakdown C Water Disclosure Signatories C Water Disclosure Signatory Assets Asset Managers 158 Asset Owners 68 Banks 22 Insurance 6 Other 5% 1% 43% Number of Signatories Assets (US$ Trillions) 15% 36% Domini Social Investments LLC Dongbu Insurance Earth Capital Partners LLP Ecclesiastical Investment Management Ecofi Investissements - Groupe Credit Cooperatif Edward W. Hazen Foundation EEA Group Ltd Elan Capital Partners Element Investment Managers Environment Agency Active Pension fund Epworth Investment Management Equilibrium Capital Group equinet Bank AG Erste Asset Management Essex Investment Management Company, LLC ESSSuper Ethos Foundation Etica Sgr Eureka Funds Management Eurizon Capital SGR Evangelical Lutheran Church in Canada Pension Plan for Clergy and Lay Workers Evangelical Lutheran Foundation of Eastern Canada F&C Investments FAELCE Fundacao Coelce de Seguridade Social FAPERS- Fundação Assistencial e Previdenciária da Extensão Rural do Rio Grande do Sul Fédéris Gestion d Actifs FIDURA Capital Consult GmbH FIM Asset Management Ltd FIM Services FIPECq - Fundação de Previdência Complementar dos Empregados e Servidores da FINEP, do IPEA, do CNPq First Affirmative Financial Network, LLC Firstrand Group Limited Five Oceans Asset Management Florida State Board of Administration (SBA) Folksam Fondation de Luxembourg Forma Futura Invest AG FRANKFURT-TRUST Investment-Gesellschaft mbh Fukoku Capital Management Inc FUNCEF - Fundação dos Economiários Federais Fundação AMPLA de Seguridade Social - Brasiletros Fundação Atlântico de Seguridade Social Fundação Banrisul de Seguridade Social Fundação de Assistência e Previdência Social do BNDES - FAPES Fundação Itaipu BR - de Previdência e Assistência Social Fundação Promon de Previdência Social Fundação Rede Ferroviaria de Seguridade Social Refer Fundação Vale do Rio Doce de Seguridade Social - VALIA FUNDIÁGUA - Fundação de Previdência da Companhia de Saneamento e Ambiental do Distrito Federal Futuregrowth Asset Management Generali Deutschland Holding AG Gjensidige Forsikring ASA Global Forestry Capital SARL GLS Gemeinschaftsbank eg GOOD GROWTH INSTITUT für globale Vermögensentwicklung mbh Governance for Owners Government Employees Pension Fund ( GEPF ), Republic of South Africa GPT Group Greater Manchester Pension Fund Green Cay Asset Management Green Century Capital Management GROUPAMA EMEKLILIK A.Ş. GROUPAMA SIGORTA A.Ş. Groupe Crédit Coopératif Groupe Investissement Responsable Inc. GROUPE OFI AM Harbour Asset Management Harrington Investments, Inc Hauck & Aufhäuser Asset Management GmbH Hazel Capital LLP Healthcare of Ontario Pension Plan (HOOPP) Helaba Invest Kapitalanlagegesellschaft mbh Henderson Global Investors Hermes Fund Managers HESTA Super HIP Investor Holden & Partners HSBC Holdings plc HUMANIS Hyundai Marine & Fire Insurance Co., Ltd Hyundai Securities Co., Ltd. IBK Securities IDBI Bank Ltd Illinois State Board of Investment Ilmarinen Mutual Pension Insurance Company Impax Group plc Industrial Bank of Korea Calvert views water as both a critical global sustainability challenge and significant investment opportunity. C data will help us evaluate company performance across our funds, including the Calvert Global Water Fund. Bennett Freeman, Senior Vice President, Sustainability Research and Policy, Calvert Investments 7

8 8 Industrial Development Corporation ING Group N.V. Insight Investment Management (Global) Ltd Instituto Sebrae De Seguridade Social - SEBRAEPREV IntReal KAG Investec Asset Management Investing for Good CIC Ltd Irish Life Investment Managers JPMorgan Chase & Co. Jubitz Family Foundation Jupiter Asset Management Kaiser Ritter Partner Privatbank AG KB Kookmin Bank KBC Asset Management KCPS Private Wealth Management KDB Asset Management Co., Ltd. Kennedy Associates Real Estate Counsel, LP KEPLER-FONDS Kapitalanlagegesellschaft m. b. H. Keva KfW Bankengruppe Killik & Co LLP Kiwi Income Property Trust Kleinwort Benson Investors KLP Korea Technology Finance Corporation (KOTEC) KPA Pension Kyrkans pensionskassa La Banque Postale Asset Management La Financiere Responsable Lampe Asset Management GmbH LBBW Asset Management Investmentgesellschaft mbh LD Lønmodtagernes Dyrtidsfond Legal & General Investment Management Legg Mason Global Asset Management LGT Capital Management Ltd. Light Green Advisors, LLC Living Planet Fund Management Company S.A. Lloyds Banking Group Local Authority Pension Fund Forum Local Government Super Local Super Logos portföy Yönetimi A.Ş. London Pensions Fund Authority Lothian Pension Fund LUCRF Super Lupus alpha Asset Management AG MainFirst Bank AG MAMA Sustainable Incubation AG Maple-Brown Abbott Marc J. Lane Investment Management, Inc. Maryland State Treasurer MATRIX GROUP LTD McLean Budden Meeschaert Gestion Privée Mercy Investment Services, Inc. Mergence Investment Managers Meritas Mutual Funds MetallRente GmbH Metzler Asset Management GmbH Midas International Asset Management, Ltd. Miller/Howard Investments Mirae Asset Global Investments Mirae Asset Securities Co., Ltd. Missionary Oblates of Mary Immaculate Mistra, Foundation for Strategic Environmental Research Mitsubishi UFJ Financial Group Mitsui Sumitomo Insurance Co.,Ltd Mizuho Financial Group, Inc. Mn Services Momentum Manager of Managers (Pty) Limited Monega Kapitalanlagegesellschaft mbh Mongeral Aegon Seguros e Previdência S/A Mountain Cleantech AG MTAA Superannuation Fund Mutual Insurance Company Pension-Fennia Natcan Investment Management Nathan Cummings Foundation, The National Australia Bank Limited National Bank of Canada National Grid Electricity Group of the Electricity Supply Pension Scheme National Grid UK Pension Scheme National Pensions Reserve Fund of Ireland National Union of Public and General Employees (NUPGE) Nativus Sustainable Investments NATIXIS Nedbank Limited Needmor Fund NEI Investments Nelson Capital Management, LLC Neuberger Berman New Alternatives Fund Inc. New Mexico State Treasurer New York State Common Retirement Fund (NYSCRF) Newton Investment Management Limited NGS Super NH-CA Asset Management Company Nikko Asset Management Co., Ltd. Nipponkoa Insurance Company, Ltd NORD/LB Kapitalanlagegesellschaft AG Nordea Investment Management Norfolk Pension Fund Norges Bank Investment Management North Carolina Retirement System Northern Ireland Local Government Officers Superannuation Committee (NILGOSC) NORTHERN STAR GROUP Oddo & Cie OECO Capital Lebensversicherung AG ÖKOWORLD OMERS Administration Corporation Ontario Teachers Pension Plan OP Fund Management Company Ltd Oppenheim & Co. Limited Opplysningsvesenets fond (The Norwegian Church Endowment) OPTrust Oregon State Treasurer Orion Energy Systems Osmosis Investment Management Parnassus Investments Pax World Funds Pensioenfonds Vervoer Pension Protection Fund Pensionsmyndigheten Perpetual Investments PETROS - The Fundação Petrobras de Seguridade Social PFA Pension PGGM Vermogensbeheer Phillips, Hager & North Investment Management PhiTrust Active Investors Pictet Asset Management SA Pioneer Investments PKA Pluris Sustainable Investments SA PNC Financial Services Group, Inc. Pohjola Asset Management Ltd Portfolio 21 Investments PREVHAB PREVIDÊNCIA COMPLEMENTAR PREVI Caixa de Previdência dos Funcionários do Banco do Brasil PREVIG Sociedade de Previdência Complementar Provinzial Rheinland Holding Prudential Investment Management Psagot Investment House Ltd PSP Investments Q Capital Partners Co. Ltd QBE Insurance Group Rabobank Raiffeisen Fund Management Hungary Ltd. Raiffeisen Kapitalanlage-Gesellschaft m.b.h. Rathbones / Rathbone Greenbank Investments RCM (Allianz Global Investors) Rei Super RLAM Robeco Robert & Patricia Switzer Foundation Rockefeller Financial (trade name used by Rockefeller & Co., Inc.) Rose Foundation for Communities and the Environment Royal Bank of Canada Royal Bank of Scotland Group RPMI Railpen Investments RREEF Investment GmbH Russell Investments SAM Group Sampension KP Livsforsikring A/S Samsung Fire and Marine Insurance Samsung Securities Sanlam Life Insurance Ltd Santa Fé Portfolios Ltda Santam Sarasin & Cie AG SAS Trustee Corporation Schroders Scottish Widows Investment Partnership SEB SEB Asset Management AG Sentinel Investments SERPROS - Fundo Multipatrocinado Service Employees International Union Pension Fund Seventh Swedish National Pension Fund (AP7) Shinhan Bank Shinhan BNP Paribas Investment Trust Management Co., Ltd Shinkin Asset Management Co., Ltd Siemens Kapitalanlagegesellschaft mbh Signet Capital Management Ltd Smith Pierce, LLC SNS Asset Management Social(k) Socrates Fund Management Solaris Investment Management Sompo Japan Insurance Inc. Sopher Investment Management SouthPeak Investment Management SPF Beheer bv Sprucegrove Investment Management Ltd Standard Chartered Standard Chartered Korea Limited Standard Life Investments State Street Corporation StatewideSuper Strathclyde Pension Fund Stratus Group Superfund Asset Management GmbH Sustainable Capital Sustainable Development Capital Svenska Kyrkan, Church of Sweden Swift Foundation Swisscanto Asset Management AG Syntrus Achmea Asset Management T. SINAİ KALKINMA BANKASI A.Ş. TD Asset Management (TD Asset Management Inc. and TDAM USA Inc.) Telluride Association TerraVerde Capital Management LLC TfL Pension Fund The Brainerd Foundation The Bullitt Foundation The Central Church Fund of Finland The Children s Investment Fund Management (UK) LLP The Co-operative Asset Management The Daly Foundation The Environmental Investment Partnership LLP The Joseph Rowntree Charitable Trust The Korea Teachers Pension (KTP) The Pension Plan For Employees of the Public Service Alliance of Canada The Pinch Group The Russell Family Foundation The Sandy River Charitable Foundation The Sisters of St. Ann The United Church of Canada - General Council The University of Edinburgh Endowment Fund The Wellcome Trust Threadneedle Asset Management TOBAM Tokio Marine Holdings, Inc Toronto Atmospheric Fund Trillium Asset Management Corporation Triodos Investment Management Tri-State Coalition for Responsible Investment Union Asset Management Holding AG Union Investment Privatfonds GmbH Unionen UNISON staff pension scheme UniSuper Unitarian Universalist Association United Methodist Church General Board of Pension and Health Benefits Universities Superannuation Scheme (USS) Vancity Group of Companies VCH Vermögensverwaltung AG Veris Wealth Partners Vermont State Treasurer Vexiom Capital Group, Inc. VicSuper Victorian Funds Management Corporation VietNam Holding Ltd. Vinva Investment Management Voigt & Coll. GmbH Waikato Community Trust Walden Asset Management, a division of Boston Trust & Investment Management Company WARBURG - HENDERSON Kapitalanlagegesellschaft für Immobilien mbh WARBURG INVEST KAPITALANLAGEGESELLSCHAFT MBH Water Asset Management, LLC West Yorkshire Pension Fund WestLB Mellon Asset Management (WMAM) Westpac Banking Corporation WHEB Asset Management White Owl Capital AG Winslow Management, A Brown Advisory Investment Group Woori Bank York University Pension Fund Youville Provident Fund Inc. Zegora Investment Management Zevin Asset Management Zurich Cantonal Bank

9 Seizing Water-Related Opportunities Creates Business Value The opportunities identified are challenging the business as usual scenario and creating value from innovative technologies and business initiatives. Over the past year, water scarcity risk has gained increasing attention both globally and in the US. The persistent drought in the US has highlighted the critical role water serves in our economy as a key resource in agriculture, energy production and manufacturing. Both agriculture and energy production have felt the impacts of the drought, including reduced agricultural production and the resultant increase in food prices along with disruptions in energy production. While the drought in the US may end over time, the increased demand on finite water resources will likely continue, and with it, increased water scarcity. The reality of increased demands on finite freshwater supplies and resultant scarcity is projected to result in a 40 percent shortfall in supplies by 2030 under business as usual conditions. 8 Many of the companies responding to the 2012 C Water Disclosure information request are not accepting business as usual. They are seizing the opportunity to address water scarcity and, fortunately, business as usual is unlikely to be the case. As reflected in many of the responses to the 2012 C Water Disclosure information request, the opportunities identified are challenging the business as usual scenario and creating value from innovative technologies and business initiatives. The 2012 C Water Disclosure US Report reflects a move by companies to create technologies to address water risk. In addition to technology innovation, we are seeing innovation in partnerships with the move to collective action. Combined, these two innovation paths provide hope for addressing this pressing resource challenge. Again, this year we are proud to be part of this effort by C to increase the awareness of the importance of addressing water scarcity risks and resultant business risks and opportunities. We recognize the efforts of those companies that responded to the information request, to those investors participating in C Water Disclosure and to our colleagues from Molson Coors, who have helped shaped a successful 2012 C Water Disclosure program. Will Sarni Director and Practice Leader, Enterprise Water Strategy Deloitte Consulting LLP 8: Assuming current projections of population and economic growth, Final.pdf 9

10 S&P 500 Insight 3 Response rates by sector % of respondents S&P % Consumer Discretionary 28% Consumer Staples 62% Energy 22% Health Care 57% Industrials 33% Information Technology 45% Materials 50% Utilities 38% 4 Reported exposure to water related business impacts and risks Suffered water-related business impacts in past five years Exposed to risks in direct operations or supply chain S&P 500 Consumer Discretionary Consumer Staples Energy Health Care Industrials Information Technology Materials Utilities % of respondents 45% 63% 50% 56% 54% 75% 38% 100% 37% 58% 54% 54% 23% 38% 53% 60% 75% 100% Respectable response rate for year one 41% (141) of 345 invited companies from the S&P 500 responded to the 2012 C Water Disclosure information request. This is a respectable response rate for the program s first year in the US. However, given the weight of investor interest and the high profile of water-related issues in the country, we anticipate a significant increase in future years. The Consumer Staples sector leads with a 62% response rate while the Energy sector trails at just 22%; this is surprising considering Energy sector respondents report the highest exposure to water-related risks. Impacts are being felt and water is a substantial issue for businesses 45% of respondents have experienced water-related detrimental impacts in the past five years. The Southern Company, for example, reports a US$200 million loss caused by the 2008 drought in the US which resulted in hydroelectric power generation dropping by 50%, while Alcoa reports that business interruption and property damage caused by flooding cost the company an estimated US$130 million. 63% of respondents identify water as a substantial risk to their business with risks to direct operations significantly outweighing risks to supply chains (see Figure 5). Companies report a total of 451 risks, 58% of which are reported to have the potential to impact business now or within five years (see Figure 8). Interestingly, water stress or scarcity the most frequently reported category of risk is considered mostly to be long term or having an unknown timeframe whereas the opposite is true for Global 500 respondents. 10 The exposure to risk of respondents in the Utility sector (100%) is markedly higher than for S&P 500 respondents as a whole (63%). Despite widespread exposure to risk, Utility respondents rank among the lowest for having board-level oversight of their water policies, strategies or plans (17%), and even fewer (8%) report setting concrete water-related targets or goals. Respondents in the Utilities sector have experienced significantly more water-related detrimental impacts than any other sector. Examples include the cost of changing cooling water regulations, flooding of critical infrastructure and remediation of groundwater pollution.

11 5 Types of water-related risk reported in direct operations and supply chain 6 Water-related risk and opportunity: Reported exposure and timeframe 7 Water management and governance Direct operations Supply chain Yes No Don t Know (0-5 years) (> 5 years) Unknown S&P 500 Global 500 Water stress or scarcity Flooding Regulatory uncertainty Higher water prices Rising discharge compliance costs Declining water quality Tightening withdrawal limits Water efficiency requirements % of respondents 31% 17% 23% 12% 21% 6% 16% 5% 14% 3% 12% 3% 12% 3% 11% 3% Time frame Exposure Direct Operations 63% 56% 36% 6% Supply Chain 32% 32% 36% Opportunities 63% 28% 9% Direct Operations 61% 16% 23% Supply Chain 50% 20% 30% Opportunities 81% 11% 8% % of respondents Report a policy, strategy or plan 81% 92% Board-level oversight of policy, strategy or plan 29% 58% Report concrete targets or goals 52% 55% Able to report water withdrawals 94% 97% Able to report water recycling/reuse 49% 63% Able to identify water discharges 76% 85% Able to identify linkages or trade-offs between water and carbon 64% 80% Require key suppliers to report on water use, risks and management 23% 39% Water presents opportunities to deliver substantive value for companies 63% of respondents report that water-related issues present significant opportunities for their business. Of the 181 reported opportunities, 81% have the potential to generate a substantive change to businesses now or in the next five years. Awareness and management of supply chain risk is low 36% of respondents are unable to state whether or not they are exposed to supply chain risks and only 23% of respondents require their key suppliers to report on their water use, risks and management. Companies should do more to understand the full extent of their vulnerability to supply chain risks. Water-related issues are not as prominently featured on the corporate agenda as risks and opportunities imply it should be Four-fifths of respondents have a water policy, strategy or management plan but only around half have set concrete quantitative goals and targets and fewer still afford these policies, strategies and plans board-level oversight. This is surprising given the extent and immediacy of risks companies face. US respondents trail their Global 500 counterparts in each of the governance and management indicators. However, the responses follow a similar pattern which is to be expected given that 52% of US respondents also feature in the Global 500 sample. 11

12 Gaining Competitive Advantage in a Water Constrained World The 2030 Water Resources Group predicts that, under business as usual conditions, the demand for water will exceed supply by 40% by 2030 and that closing this gap could cost as much as US$50 to US$60 billion a year for the next twenty years. 9 As growing demand for water from industrialization, population growth, economic growth and an expanding middle class is compounded by the impacts of climate change, the global economy will likely favor businesses that take a pro-active approach to water stewardship. Successful companies are likely to be those that view water strategically and take steps to transform their business. This report marks the first C Water Disclosure report specifically focusing on US business and provides insight into the approaches many US companies are taking to develop solutions to mitigate water-related business disruption, deliver value to their own operations and stakeholders across their value chain 10 and drive market growth. Direct, collaborative engagement with the communities in which we reside is the most successful strategy for identifying and managing water resources. Duke Energy The 2012 C Water information request was formally supported by 470 investors representing US$50 trillion in assets. 345 companies listed on the Standard & Poor s 500 Index (S&P 500) were invited to respond. Companies were selected because they operate in sectors which are waterintensive or exposed to water-related risk. 141 of the 345 companies responded, a respectable response rate for the first year of 41%. This report marks the first C Water Disclosure report specifically focusing on US business. Water-related Risk as a Driver for Business Opportunity 63% of responding companies identify water as a substantial business risk to their direct operations or supply chain, and almost half (45%) have experienced water-related detrimental impacts in the past five years. For example, The Southern Company reports a US$200 million loss during the 2008 drought in the US due to hydroelectric power generation dropping by 50%; and Kimberly-Clark reports that in 2010 seasonal drought in Kluang, Malaysia resulted in production curtailments costing US$2 million. The need for an appropriate business response to waterrelated risk is both clear and immediate: the majority of risks reported with an associated timeframe are expected to impact US businesses now or within the next five years 61% for direct operations; 50% for supply chain. The most frequently reported risks for both direct operations and supply chains include increased water stress or scarcity, flooding and regulatory uncertainty. Many US companies are conducting water risk assessments to develop an understanding of their exposure to waterrelated risks. While just 6% of respondents are unable to state whether or not their direct operations are exposed to water-related risk, this figure rises to 36% when evaluating the supply chain. With only 23% of respondents requiring key suppliers to report on water use, risks and management, companies should aim to improve their understanding in this area. 12 9: Assuming current projections of population and economic growth, pdf. 10: Value chain refers to a company s entire process from raw material extraction to the eventual use or disposal by the end user (i.e., cradle to grave). Supply chain refers only to processes upstream of business operations.

13 8 REPORTED WATER-RELATED RISKS AND THEIR TIMEFRAMES 11,12 Near term (0-5 years) Long term (>5 years or unknown) *Other risks also include other physical risks. 11: Risks shown are those identified more than 10 times by companies across direct operations and supply chain. Inadequate infrastructure, product-related risks and litigation were also reported. 12: Long term risks include those with an unknown timeframe. number of risks Water stress or scarcity Flooding Regulatory uncertainty Higher water prices Water efficiency requirements Declining water quality Rising discharge compliance costs 4 21 Tightening withdrawal limits Reputational damage 6 8 Restricted operational water permits 2 9 Other risks* Responding to Risk US companies are developing a range of responses to mitigate and manage water-related risks. The majority of respondents have a water policy, strategy or management plan in place (81%) and many have set concrete targets and goals (52%) and are taking actions to manage water resources or engage with stakeholders (75%). Encouragingly, respondents are finding that addressing risks can present a substantive business opportunity. For example, Molson Coors Brewing Company recognizes the link between water use and energy consumption; by driving efficiencies in water aspects at all of its breweries, it reports that energy consumption will decrease which reduces costs and decreases its carbon footprint. Meanwhile, a subsidiary of Philip Morris International, made a connection between a lack of irrigation infrastructure on a range of farms and variations in tobacco quality and yields. The company initiated an irrigation project covering an estimated 3,200 farms and 3,100 tobacco field hectares and reports that the project will not only reduce the risk of varying product quality as a result of water-scarcity but also contribute to increase the Colombian tobacco crop size, while ensuring crop and farm sustainability. Impacts and Opportunities in the Value Chain US respondents are reporting water-related risks and opportunities in their direct operations and supply chains. However, these risks and opportunities go well beyond these aspects of the value chain. Product water use (part of a product s life cycle) is increasingly a risk issue and doing more with less or no water is a driver for product innovation. Some US respondents have recognized this and are taking advantage of product development opportunities. Our greatest water use is associated with electricity used in the consumer-use phase of our products, representing close to 100% of our footprint, reaffirming our continued focus on energy-efficient performance in our products. Intel 13

14 14 9 Reported water-related opportunities and their timeframes Near term (0-5 years) Long term (>5 years or unknown) Cost savings Sales of new products or services Increased brand value Other Turning Risks into Business Opportunities % of respondents identify 181 water-related opportunities that have the potential to generate a substantive change to their business operations, revenue or expenditure; 81% of opportunities reported with an associated timeframe are available currently or are expected within the next five years. There is a striking difference between sectors with 85% of respondents in the Industrials sector reporting opportunities compared to just 38% of respondents in the Information Technology sector. To capitalize on these opportunities, many companies pursue water stewardship strategies that not only build business resilience but also turn risk management responses into a source of competitive advantage; in fact, as many respondents report opportunities (64%) as report risks in either direct operations or the supply chain (63%). 13 This suggests that while water-related issues are often presented as something companies should tackle as part of a risk management strategy, the converse is also true. Waterrelated opportunities have current or near-term potential to create value for businesses and drive innovation. The most commonly reported current and near-term business opportunities include capturing cost savings, selling new products or services and improving brand value. Below is an insight into the opportunities being pursued by responding companies and the value they can generate for themselves, their suppliers and customers number of opportunities 13: Water stewardship includes on-going practices in governance, footprinting, collective action, and disclosure as well as risk and opportunity assessment. For additional details on water stewardship, reference the Alliance for Water Stewardship s International Water Stewardship Standard Guidance Document, Guidance_v_03_13_2012.pdf. The Role of Water Accounting in Identifying Opportunities Identifying opportunities for water use reductions begins with water accounting. Among US respondents, 94% are able to provide data on water withdrawals, 49% are able to provide data on water recycling/reuse and 76% are able to identify discharges by destination, treatment method and quality within direct operations. These indicators allow companies to measure water use and, thus, provide a basis for decreasing water use. Water efficiency measures frequently result in energy savings; both operating costs and environmental impacts can be reduced through integrated water and energy management, though in some instances there are tradeoffs in addition to the positive financial and environmental impacts. 64% of US respondents identify linkages between water and carbon emissions in their operations or supply chain, compared to 80% of the Global 500. The most mature water stewardship strategies include a comprehensive, cost-effective operating program rather than one-off investments in new equipment and technology. The goal of optimizing water usage, recycling and reuse, and reducing discharges in conjunction with improving the efficiency of production processes can become a differentiator in the marketplace. When incorporated in a comprehensive strategy, simple, lowcost actions can be applied across the value chain to generate even greater water conservation improvements. Supply chain For many respondents, the water they use in direct operations pales in comparison to water use embedded within their value chains (i.e. the amount of water required to produce and use a product throughout its life cycle). Yet 41% of respondents do not know if any of their raw materials come from regions subject to water-related risk, 36% do not know if their supply chains are exposed to water-related risks and only 23% require key suppliers to report on water use, risks and management. Supply chains are complex, involving many players across global networks, which creates an intricate set of challenges for managing water resources. To reduce risk exposure, a company s water stewardship strategy should aim to manage water quality and increase water efficiency through supplier sourcing. Numerous respondents are already doing this with supplier codes of conduct, scorecards, and incentives. Product use As noted previously, companies can look to decrease water use in their value chain by designing products that use less water. Though not all respondents are directly reporting or quantifying these impacts, some have reported on the innovative products they have created and the market opportunities this brings. Examples are highlighted in the Innovation of new products and services section of this report.

15 Capturing Cost Savings Companies are primarily exposed to water-related risks as a result of reliance on water across their value chain. A logical response from companies is to attempt to reduce this reliance by becoming more water efficient. Benefits of this approach are not limited to reducing risks however; 26% of respondents, including Cisco Systems, Johnson Controls and Kellogg, report that cost savings are an opportunity for their business. These cost savings include decreased utility costs for water and energy due to lower water use, and reduced compliance and reputational costs. A number of respondents are sharing successful approaches and lessons learned with their suppliers, contributing to more competitive and resilient supply chains. By examination of our water flow, heating, wastewater and use, we have come up with improvements in multiple processes. This has allowed for additional capacity, reduced energy usage and other savings besides those attributed to the cost of water. General Mills There is a distinct spread across sectors that identify cost savings; respondents in the Energy sector report the highest percentage of cost saving opportunities (55%) while respondents in the Utilities sector report the lowest (12%). This disparity is likely due to decoupling (whereby all electricity supply costs are directly passed through to the customer), resulting in limited financial implications of respondents in the Utilities sector. Approaches to water efficiency that help deliver cost savings Case Studies Efficiently managing processes to reduce water use Biogen Idec reports that water is a core ingredient in the manufacture of its therapies for multiple sclerosis, such as AVONEX and TYSABRI. We recognize the importance of this valuable resource and work to optimize, recycle and reuse it whenever possible. The company s water optimization program aimed to eliminate acid from cleaning cycles throughout the manufacturing process while reducing and optimizing water use. The results of this effort saved 4.4 million gallons of water in 2009 and achieved $900,000 in cost savings from chemical, energy and water reductions. Implementing new processes that use significantly less water Freeport-McMoRan reports that the high cost of conveying water to its operations led the company to implement engineering controls to decrease water losses, and thus reduce demand. The recent installation of closed-loop chillers at our Bagdad mining operation in Arizona resulted in a reduction in new water usage requirements by approximately 1,500 gallons per minute, an equivalent savings of almost 700 million gallons per year. Increasing water recycling and reuse DuPont s Starke, Florida site has reduced its annual consumption of groundwater from 4.5 million m 3 to 1.6 million m 3 by recycling clean effluent water for process use in lieu of freshwater and upgrading its water distribution system to eliminate unintentional losses and improve efficiency. A seven-step water conservation methodology has been developed to assist other sites reduce use and realize savings. Leveraging water and energy linkages Campbell Soup s Energy Network Team led several initiatives that reduced the amount of water and energy needed to make their products. Since 2005, the team reduced water use by approximately 17% and energy use by 14% per tonne of food produced. Over the past year, water use was reduced by 5% and energy use reduced by 4%...These projects are providing annual savings ranging from US$2.5 million to US$5 million. Water-efficient technologies that, in aggregate, have a substantial impact Darden Restaurants reports that as we discover new technologies and practices, we will ensure that they are implemented throughout our 1,900-plus restaurants, where feasible. In this way, even small improvements can cumulatively yield big savings. Reducing our water use will help to ensure adequate water supplies in the long term, it will help us to maintain goodwill in the communities in which we are located, and it makes economic sense since water conservation saves us money. For example, as a result of water-saving initiatives in its direct operations, the company avoided using more than 1 billion gallons of water in FY2011 [compared to FY2008] despite opening more than 200 additional restaurants. 15

16 Selling New Products and Services Many US companies recognize that providing solutions to water-related challenges presents an emerging area of opportunity in an increasingly water-stressed world. 22% of respondents, including Clorox, EMC and Stanley Black & Decker, report that sales of new water-related products and services are an opportunity for their business, with audiences ranging from consumers to businesses across a diverse range of markets. The market is expected to grow fastest in areas lacking access to safe drinking water and sanitation, as well as those expecting greater impacts from climate change where water efficiency, recycling and reuse are expected to become increasingly important. The growing disparity between water supply and demand, deteriorating water quality globally, interconnections between energy and water and the massive need for investment in water treatment and infrastructure in the developing world all point toward growing demand for the products and services supplied by GE. General Electric Respondents in the Health Care and Information Technology sectors account for 44% of all new product or service sales opportunities identified, while the consumer-facing sectors of Consumer Discretionary and Consumer Staples identify fewer product-related opportunities (7% and 9%, respectively); the Utilities sector did not report any productrelated opportunities. Products and Services Case Studies Advanced water management solutions IBM has developed a suite of Advanced Water Management solutions that address the challenges of water efficiency, aging infrastructure, and increased demand for proactive water-related risk management by leveraging all of the benefits of smarter automation and digitization. The solutions provide robust real-time analytics, modeling, and decision support capabilities We enable strategic information management solutions and intelligent infrastructures to support the management of entire natural water systems, levee systems, water infrastructure, water utilities, and water treatment facilities. Design of water-efficiency services for consumers Marriott International reports that its Green Hotels Global dashboard can report each hotel s environmental impact according to a set of industryestablished metrics. The tool is being deployed in 2012 and will help our customers determine the carbon and water footprint associated with room stays and meetings. Advanced water treatment technologies Air Products & Chemicals reports that it has developed the first ozone-based technology, HiPOx, validated to meet disinfection criteria for treating wastewater and making it available for reuse. The company s offerings include pure oxygen aeration systems for wastewater treatment, as well as ozone and advanced oxidation systems for drinking water and water reuse applications. Advanced water recycling technologies Ecolab reports that identifying and developing new technologies to address changes in the marketplace around the globe is the hallmark of their business model. We work continuously with our customers to support their needs with innovation and service in the ever changing regulatory, food safety and public health arenas. One such example is Performance Plus, a washing process for hotel and healthcare laundries combines Ecolab recycling systems and an innovative process to deliver maximum savings. Annual savings for one laundry customer using the system: Energy savings: 3,492,661 kwh; Water savings: 49,895,160 liters. CO 2 e avoided: 2,100 tons. Design of water-efficient products for consumers Proctor & Gamble has developed Downy Single Rinse laundry detergent for consumers in water scarce areas, which enables the consumer to successfully rinse their laundry with just one rinse load of water; rather than the three or four loads of water it would need using conventional rinsing. 16