ESG: The Tidal Wave Hitting Businesses in 2022

A growing tidal wave hitting businesses can be summarized in three letters – ESG. The environmental, social and governance investing movement may not have fully grabbed the public’s attention – yet – but it is rapidly growing on national and international business radars. In fact, ESG assets are expected to exceed $50 trillion globally by 2025.

While the vanguard of ESG investing was concentrated in Europe, that started to change in January 2020 when BlackRock, the world’s largest asset manager, told CEOs that “climate risk is investment risk” and going forward sustainability will be “at the center of our investment approach.” BlackRock’s initial shockwave soon became a tidal wave, particularly in the U.S., with more investors signing on and the Securities & Exchange Commission recently proposing mandatory climate disclosures.

Make no mistake: This is not just an issue for publicly traded companies. Those companies, answering to investors and consumers, will pressure their private company suppliers and vendors to become more sustainable.

ESG reporting has become a priority for C-suite leaders and their boards. Much of the attention so far has been focused on carbon, which is relatively “easy” to comprehend, but corporate leaders have said the next “wave” is water. The challenge is they don’t know where to begin or what to do.

Water is a complex problem to tackle because water challenges are diverse, local and shared across many stakeholders in a watershed. Until now, companies typically haven’t thought about water until they didn’t have it, or until the quality was so bad that their operations literally ground to a halt.

Now is the time to start thinking about water in all its complexity. Most of the effects of climate change will be felt through water events, from coastal storm surges to loss of source water from low snowpack and everything in between, leading to more flooding in some areas and drought and scarcity in others. These impacts will leave few companies untouched, and the financial consequences are anyone’s guess, from direct operational losses to hits on investments and financing.

Water issues vary based on how a company uses water and where it is located. We’ve heard much about the drought on the West Coast and how that will affect businesses, particularly those that are heavily water-reliant such as data centers and food and beverage companies. In the Great Lakes region, companies are relatively immune from water scarcity. But even in water-rich regions of the U.S., companies face their own problems of water quantity, such as too much rain, and quality, such as contamination. Plus, we live in a global economy, with supply chains spread throughout the world. So, water issues in China, for example, ripple back to our home markets.

Last summer, Piet Klop, head of responsible investment at PGGM Investments, said it succinctly when a colleague told him, “Water isn't that important because the entire water sector is less than 1 percent of GDP.” The problem, he said, “is that the other 99 percent can't do without it.”

What is needed is good corporate water stewardship practices and technologies to address water-related issues. The first step for any company is to understand how it uses water and the condition of the watershed in which it operates to start building a water stewardship plan. However, good corporate water stewardship practices and technology are not enough—we also need proper reporting practices to accelerate and verify those who are acting as good water stewards.

ESG-related performance improvements and reporting are no longer optional for businesses. You can start the journey today by assessing and addressing your company’s water use and impacts. The worst thing to do is nothing because you will inevitably be engulfed by the tidal wave.

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Image credit: Clay Banks via Unsplash