Monthly Archives: February 2010

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Big Companies Not Managing Water Scarcity Risks

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Despite recent scrutiny of some large corporations that rely heavily on water resources, it seems many companies are still falling short in managing and disclosing water scarcity risks. That’s according to a recent report issued by the Ceres investor coalition, the financial services firm UBS and financial data provider Bloomberg.

The report evaluates and ranks water disclosure practices of 100 publicly traded companies in eight key sectors exposed to water-related risks. The report shows that many companies are not including material water risks and performance data in their financial filings, nor are they providing local-level water data, particularly in the context of facilities in water-stressed regions. Moreover, none of the 100 companies are providing comprehensive water data on their supply chains, an especially glaring omission given that the vast majority of many corporations’ water footprint is in the supply chain.

The report uses a scoring scale of 0 to 100 with the three highest scoring companies being UK beverage company Diageo, Swiss mining company Xstrata and U.S. electric power company Pinnacle West (owner of Arizona Public Service).

“Most companies provide basic disclosure on overall water use and water scarcity concerns, but their focus and attention so far is not nearly at the level needed given the enormity of this growing global challenge,” said Mindy S. Lubber, president of Ceres. “Our global economy runs on water and in many parts of the world this finite resource is under threat. Companies must do more to disclose their potential exposure from this issue and their strategies for responding.”

The report assesses companies in eight different sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil and gas and semiconductors. The report found the following:

The mining sector scored highest overall, followed by the beverage industry. Companies in the homebuilding sector had the lowest overall scores.
Only 21 companies disclose targets to reduce water use, and even fewer – just 15 companies – had goals to reduce wastewater discharge.
Only 17 companies report local-level water data and only a handful provide the information in the context of operations in water stressed regions.
  • The mining sector scored highest overall, followed by the beverage industry. Companies in the homebuilding sector had the lowest overall scores.
  • Only 21 companies disclose targets to reduce water use, and even fewer — just 15 companies — had goals to reduce wastewater discharge.
  • Only 17 companies report local-level water data and only a handful provide the information in the context of operations in water stressed regions.
The findings in this report do not bode well for companies with the highest scores. Investors have been increasingly critical of companies that do not disclose environmental, social and governance risks they may face. It is nice to see that this report offers a bit of guidance for those companies wanting to be more transparent with such risks. It recommends companies:
  • include material water risk factors and performance data in their financial filings;
  • provide water performance data broken down to the facility level for operations in water-stressed regions;
  • outline actions and policies for assessing and managing water risks, including quantified targets for reducing wastewater and water use;
  • disclose how they are collaborating with stakeholders and suppliers on water risks, including setting performance goals for key supply chains;
  • outline specific strategies for developing water-related products with strong market potential in a water-constrained world.

For more about water scarcity, check out the cover story we ran in our June 2009 issue. And please, let us know how your company is managing water scarcity risks.

Snowfall’s Impact on the Economy

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Snow days are fun for most everyone and maybe that’s because people don’t immediately realize the economic impact of snowfall on the areas hardest hit. Let’s take D.C. for example. The area is still digging out from snowstorms that dumped a total of 54.9 inches of snow (as measured at Reagan Airport) — breaking a record last set in 1899.

As one could imagine, when a major city shuts down almost completely for more than four days, the financial repercussions are far-reaching. Washington, D.C.’s Office of Personnel management has said each snow day costs taxpayers $100 million in lost productivity from federal workers, not to mention lost productivity for state and local governments.

Then there’s the cost of removing the snow.

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Maryland, Virginia and D.C. will likely ask for emergency federal aid to cover the cost of the massive cleanup. Though it’s too early to put a number on the cost of the cleanup, we can compare it to the 1993 blizzard that struck the East Cost and cost more than $6 billion. As for New York City, Mayor Michael Bloomberg has said that each one inch of snowfall this week cost the city $1 million.

And as thousands of flights were cancelled due to the storm, an untold number of business meetings were also nixed, representing a loss of potential business. And it almost goes without saying that grounding planes for an extended period of time also hurts the airline companies’ bottom line.

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These points have been floating around the news since the snow began to fall on the East Coast in December. But what has not been mentioned quite as much is what happened recently at Dulles airport that has the potential to severely affect the aircraft insurance market. Saturday’s heavy snowfall in the D.C. area caused a roof collapse at a Dulles Airport hangar.

The bill to general aviation from last weekend’s massive snowstorm on the east coast could hit tens of millions of dollars and most of that could come from the partial collapse of one building at Dulles International Airport. As we reported Saturday, part of the roof of Dulles Jet Center came down under the weight of the snow. At the time, all that was known was that there were aircraft inside but photos provided to AVweb by a reader show a scene that is enough to make any insurance executive shiver. Two Bombardier Global Express jets and a Gulfstream 550 appear to be in takeoff attitude inside the hangar, their tails pushed to the floor under the weight of the crushed structure of the building. It’s not immediately known whether they can be repaired and it might be tricky getting them out from under the twisted steel.

For an already tight and volatile aircraft insurance market, the incident at Dulles will undoubtedly severely affect premiums as millions in claims are paid out for this incident.

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And as more snow is expected to blanket the East Coast once again early next week, the total economic loss continues to add up.

RiskCast: Episode 5

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Toyota’s tumultuous times and a preemptive lawsuit involving Thomas’ english muffin.

These were the topics of the discussion when us editors of Risk Management got together to record this fifth installment of the RiskCast for your listening pleasure. Also included is an interesting discussion on the top 10 product recalls ever issued.

Enjoy.

And remember, you can also subscribe to the RiskCast through iTunes by clicking here or searching for “RiskCast” within the iTunes store. Please let us know what you think by ranking us or giving us a review on iTunes.

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Snow Insurance, Anyone?

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Most people who know me know that I despise talking about the weather.

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I know it’s all part of the small-talking social game we all play but I have to think that we could find something better to talk about than statements of the obvious. Yeah it’s hot/cold/raining/snowing. That’s life. Move on.

That being said, I’m writing this from my house because I have bought into the weather reports that seem to indicate that the New York area will soon be hit with the most blizzardiest blizzard we ever did see. So far I’m unimpressed.

Of course, if I lived a bit further south in the D.C. area, I might have a different perspective. Evidently those folks have seen 14 inches of snow or something like that and it’s obviously a bit of a hassle as these Gawker photos from D.C.-area supermarkets last week can attest. Even mail delivery has been suspended. “Neither snow, nor rain, nor heat, nor gloom of night stays these courageous couriers from the swift completion of their appointed rounds” indeed. Not that I blame them, mind you. You don’t see me out there.

But what I did find interesting is this column from the Washington Post’s Steven Pearlstein. From the unique perspective of someone who evidently has gotten a little tired of being snowed in, he talks about how ineffective snow cleanup is indicative of the disconnect between what we want from our government and what we are willing to pay for.

You’re sitting at home for the third straight day, unable to get to work because of the snow. Your kids are on the fourth day of a snow vacation that is likely to last through the end of the week. How much would you have been willing to pay to guarantee that the streets and sidewalks were clear and things could have run pretty much as normal? $10? $25? $50?

Or imagine that you own a business with 50 employees that is closed for three days because of the snow, but you still have to pay ,000 in salaries for work they didn’t do. What would you have been willing to pay to have things running normally this week?

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$1,000? $2,500? $5,000?

Now, says Pearlstein, what if the government could offer you a little “snow insurance,” a sort of guarantee that snow would cause little to no disruption to your everyday life?

To pay for the extra manpower and equipment, the politicians proposed raising taxes and fees by an average of $25 per household each year, and $2,500 for the average business.

Although the politicians’ offer would be the effective equivalent of “snow insurance,” I can assure you that the reaction to it would be quite different. Republicans would immediate call it “the biggest tax increase in history” and declare unequivocally that it would send the economy into a tailspin while radically expanding the government. Chambers of commerce would issue news releases warning that the tax would particularly hurt small-business owners, who as we all know create every new job and would now be forced to cut their payrolls or close their doors. Virginia’s House of Delegates would move immediately to kill the proposal, thereby dooming consideration by all the other jurisdictions.

As Pearlstein goes on to say, with a small investment we could save a significant amount on lost productivity costs. But as soon as you say the word “tax” or present someone with a bill, they immediately lose sight of the big picture. I’m sure any risk manager who has had to appeal to his or her CEO for more money to fund a new ERM initiative or a new safety program knows exactly what that feels like. It’s the same idea that seems to be at the center of many of the political debates in this country from health care to terrorism protection. We want all the benefits without any of the costs.

Personally, I don’t mind snow days. They always make you feel like a kid again (that is until the back pain from shoveling reminds you that you aren’t that young anymore). I don’t think “insurance” for something that will be gone in a week is all that appealing.

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But I’d like to think that when it comes to something more important, like providing for, say, fire departments, garbage collection or even health care for my family, I would have no problem opening my wallet to pay my fair share.