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News Release
Water stress: The rising costs faced by
beverages companies
21 March 2016
In the wake of rising global awareness of water risk and World Water Day on the 22nd March,
Schroders’ ESG Analyst, Elly Irving explores the potential financial impacts of water stress on
companies in the beverages sector:
Water risk is firmly on the agenda with the majority of companies across all sectors believing that
water risks are likely to materialise within the next three years1. A number of supply and demand side
issues mean that water stress, which measures “the ratio of total water withdrawals in a catchment in
a given year … to the total available water”2, is becoming an increasingly material risk for companies.
Demand side issues include a growing global population, economic development and increased
agricultural water usage. In our view, understanding and managing water risk may be fundamental to
a company.
The beverages sector is highly dependent on water. Particularly, the brewing sub-sector is vulnerable
to changes in regulation and increasing water-related costs. As the awareness of water risk improves,
the regulatory burden on companies will increase and push up costs for operating licences. Our
analysis shows that this exposure is already driving up costs, with brewers reporting the biggest
increase in their water-related capital spending3. Moreover, evidence of brewers mitigating local water
stress impacts is limited as brewers are failing to engage with local communities to provide access to
water as other beverage companies do. In order to maintain a licence to operate these companies
1
CDP, Global Water Report 2015
2
Integrating Water Stress in Corporate Bond Credit Analysis, BMZ, September 2015
3
Schroders/CDP analytics data, 2016
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Schroder Investment Management Limited
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Telephone +44 (0)20 7658 6000
www.schroders.com
may face higher social costs. These factors may expose companies to greater pressure on margins in
the medium term.
Out of eight of the brewing companies analysed, only one identified water as fundamental to its
business model and listed it within their principal key risks in their annual report. Due to this, investors
may be concerned by the lack of board oversight and failure to acknowledge this risk as fundamental
to the business model.
Elly Irving, ESG Analyst, Schroders said:
“Water stress is now recognised as a key issue by multiple stakeholders across sectors, from local
communities to companies and regulators. In response to rising water costs, stricter regulation and pressure
from local communities, companies should be focused on improving water efficiency from manufacturing and
production in order to reduce operating and social costs.”
The full thought piece is available to read here.
For further information, please contact:
Estelle Bibby
Tel: +44 (0)20 7658 3431/ Estelle.Bibby@Schroders.com
Notes to Editors
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Schroders plc
Schroders is a global asset management company with £313.5 billion (€425.4 billion/US$462.1 billion)
under management as at 31 December 2015. Our clients are major financial institutions including
pension funds, banks and insurance companies, local and public authorities, governments, charities,
high net worth individuals and retail investors.
With one of the largest networks of offices of any dedicated asset management company, we operate
from 38 offices in 28 countries across Europe, the Americas, Asia, Middle East and Africa. Schroders
has developed under stable ownership for over 200 years and long-term thinking governs our
approach to investing, building client relationships and growing our business.
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