Published on:
Jun 3, 2024
Bogdana Marinova
Senior Water Advisor at Waterplan
Water stewardship expert with over 14 years of experience in the water sector across industries, including infrastructure, mining, industrial materials, and CPG
The CDP Water Security questionnaire is among the most esteemed water sustainability reporting frameworks, highly regarded by investors, the water stewardship community, and various industries.
Sustainability managers usually gather the necessary data for the CDP Water Security report. However, understanding the specific water data requirements and how to prepare to achieve an A score can be challenging. This article delivers essential guidance to overcome this challenge and outlines:
Why disclosing information through CDP Water Security is beneficial.
The water data requirements and the scoring methodology.
Common challenges faced by sustainability managers.
Strategies to prepare for achieving an A score, including leveraging technology.
Why CDP Water Security?
The CDP Water Security is a set of questions that aim to assess how water impacts companies’ business continuity, what measures companies take to minimize or eliminate these adverse impacts, and the opportunities that arise from addressing water risks.
Similar to the other CDP questionnaires, Water Security is voluntary. However, the number of companies reporting information through CDP Water Security has been increasing. 4,815 companies have disclosed water-related data in 2023, which marks a 23% increase compared to 2022 (Figure 1) [1]. This number represents 36% of all 13,356 companies invited to participate in the Water Security questionnaire.
Figure 1: Disclosure response rate from 2015 to 2023.
Main drivers for disclosure
CDP assigns companies a performance score based on disclosed information, with an A being the highest possible score. Investors and other industry peers recognize CDP scoring as a standard, making it a valuable benchmark for corporate sustainability performance. As a result, many investors require companies to disclose their water strategies through CDP [2], while other companies voluntarily choose to report this information.
What industries can report to CDP Water Security?
Companies from all industries are invited to submit their CDP Water Security questionnaire. However, some sectors are more dependent on water and/or impact water resources more, making them more relevant for reporting.
The CDP Water Watch [3], a tool that ranks over 200 industrial activities based on their potential impact on water resources, identifies specific industries as having a critical impact on both water quantity and quality. These industries include Manufacturing, Materials, Apparel, Food & Beverage, Agriculture, Fossil Fuels, Biotech, Health Care & Pharma. Interestingly, Financial Services are also included due to the exposure of financial activities such as asset management, banking, insurance, and real estate to water risks.
In 2023, 51% of all respondents came from the Manufacturing, Materials, Food & Beverage, and Services industries (Figure 2).
Figure 2: Disclosure breakdown by industry for 2023.
Understanding CDP Water Disclosure Questionnaire
This year, the questionnaire has a new format
Starting this year, CDP Corporate Disclosure questionnaire has a new format that integrates the existing three questionnaires (Climate Change, Water Security, Forests) into one report to provide a complete picture of a company’s environmental strategy [4]. The new integrated disclosure consists of 13 modules (Figure 3):
Modules 1 to 6 are cross-thematic and include disclosure of risks, opportunities, impacts, and dependencies, governance, business strategy, and environmental performance.
Modules 7 to 11 are environmental-specific modules. The Water Security questionnaire is included in Module 9.
Figure 3: New structure for the CDP Corporate Disclosure starting in 2024. Source: CDP Corporate Disclosure, Key Changes for 2024: Part II
CDP disclosure milestones
The most important CDP disclosure milestones this year are [5]:
June 4 - Opening of the 2024 disclosure window. Companies can begin submitting their responses to the CDP questionnaire from this date onwards.
September 18 - Scoring deadline for disclosers. This marks the cutoff date by which companies must submit their responses to the CDP questionnaire to be evaluated and scored for their environmental performance.
October 2— The 2024 disclosure window closes. This is the final day for companies to submit their responses to the CDP questionnaire.
Type of water data required
The CDP Water Security portion of the questionnaire requires the following information:
Water risks & opportunities
Companies are requested to provide information about the water risks and opportunities they have identified to secure their business operations and strengthen their value chain, in alignment with other frameworks, such as TNFD, TCFD, and SBTN [6]. Some examples include improving water efficiency and reducing reliance on water resources in water-scarce basins, therefore, ensuring business continuity; or improving water treatment in basins with poor water quality, thus reducing the risk of fines and litigation.
Dependencies, impact, and management
Similar to the concept of double materiality, which is the basis for ESRS reporting, CDP includes questions about the companies’ dependencies and impacts on the environment and how they are managed. Moreover, CDP asks for interconnections between environmental dependencies, impacts, risks, and opportunities. The goal is to examine connections and synergies between environmental topics and trade-offs between climate and environmental goals.
Water targets
In addition to disclosing whether a company has set targets and the type of targets, companies are now required to disclose details about their targets and how they plan to reach them. The goal is to give clarity on whether the targets are based on the assessed risks, opportunities, impacts, and dependencies. This includes information about whether the targets are informed by the watershed conditions across the entire value chain of a company. With that, companies are encouraged to set quantitative targets based on scientific evidence, whose progress can be monitored and disclosed on a yearly basis. In addition, companies must present evidence of how the targets align with global treaties, frameworks, or initiatives, such as the Science-Based Targets Initiative or Context-Based Targets.
Understanding the scoring methodology
Despite integrating the questionnaires, CDP will maintain separate scoring methodologies for climate change, water, and forests in 2024 [7].
Furthermore, companies will receive an additional score based on their primary sector (e.g., food, beverage, and agriculture), ensuring that the assessment incorporates industry-specific characteristics and facilitates benchmarking against peers within the same sector. This sector-specific scoring approach means that respondents will only be scored within their primary sector.
To increase the water security score, companies should include an in-depth assessment of their water risks and include opportunities, dependencies, and impacts across the value chain. They should also demonstrate a strong commitment to water stewardship by setting and tracking progress toward robust targets informed by local watershed conditions and aligned with globally recognized frameworks.
In 2023, only 103 companies, including Danone, Anheuser Busch InBev, and Suntory, made the Water Security A List, representing only 2% of all companies that have disclosed their water data [8].
Common Challenges Faced by Sustainability Managers
The path to CDP disclosure can be transformational as companies uncover unrealized environmental risks and enhance their risk management processes. To get there, sustainability managers face many challenges:
Gathering and exchanging data on time between departments When it comes to reporting, significant effort is related to data gathering and consolidation. Sustainability managers are usually tasked with collecting and centralizing water data from sites. However, in many large companies, they are not responsible for issuing the final sustainability report, a task that falls to another department. This setup presents a dual challenge for sustainability managers. First, the process of collecting data from sites is highly time-consuming, often involving data that comes in different timelines and formats. Second, the information exchange with other departments can result in significant back-and-forth communication and inefficiencies.
Quantifying the value at risk at priority risk sites. Although this is not usually an issue for the CDP score, many sustainability managers struggle with quantifying the financial impact of water risk. Doing this quantification requires a deep understanding of the local watershed conditions, scenario analysis, water expertise, and close collaboration with site managers.
Lack of data documentation. Certain data required by CDP, such as details of water incidents, are not always recorded. There is often not a standard process in place to gather this information, and it can be difficult to track down. As a result, when sustainability managers attempt to collect this data, they often have to rely on the memories of stakeholders who are closer to the information.
Establishing a water strategy in time to report. One of the main CDP requirements for scoring is having a sound water strategy alongside a process for measuring water risk that considers the sites’ local context. However, many companies struggle to implement one for various reasons, including stakeholder complexity and limited resources among many operational priorities.
Key Actions You Can Take To Get an A Score in CDP Water Security
To achieve an A score, aim to answer all questions in the questionnaire with comprehensive and robust data. While you may not attain the highest score initially, consider this a long-term process. Conducting a CDP gap analysis with experts can also help identify specific areas for improvement in your disclosure efforts.
Here are some recommendations for preparing your CDP submission:
Establish an ongoing process for reporting that provides all stakeholders with a clear understanding of their roles and responsibilities and the type of data that has to be shared. Look for synergies with other sustainability reports that you need to prepare for.
Understand water risks and opportunities, impacts, and dependencies, conducting annual assessments of water risks across your business operations and supply chain. For this, it’s important to gather external local water data about hazards that may impact operations, such as water shortages, flooding, or quality issues, and integrate it with internal data to understand site-level vulnerability to external risks. After this analysis, sites can be prioritized for further assessment and development of mitigation strategies. Refer to this article for more information on water risks.
Quantify the value at risk at priority sites using scenario analysis. Scenario analysis can help evaluate potential future situations and calculate the value at risk (financial impact). This analysis is based on water consumption, the cost implications of water usage, and site-specific vulnerabilities. The assessment can provide valuable insights to plan mitigation efforts.
Set context-based water targets and a plan to achieve them. It’s important to establish measurable targets based on the needs of the local watershed and your business. You should also establish an action plan to achieve those targets and a process to track progress on an annual basis. Refer to this article for more information on water targets.
The Opportunity Of Technology
You can leverage technology solutions to streamline the gathering, centralization, and assessment of water-related data, thereby enhancing decision-making and CDP reporting. With technology, you can:
Improve communication and alignment between local facility teams and global sustainability and reporting teams to speed up the reporting process.
Centralize data and enhance documentation to ensure you report up-to-date water data.
Measure water risks with high-quality data and less time, leveraging machine learning and advanced analytics.
Quantify the value at risk by running scenarios to simulate the impacts and opportunities of water risks on companies’ operations.
Track progress toward achieving your water targets by monitoring and measuring the impact of your initiatives.
Conclusion
The CDP Water Security questionnaire requires companies to disclose information regarding water risks, opportunities, dependencies and impact, and water targets. To achieve a high score, it’s important to answer all the questions in the questionnaire with robust, data-driven information. Effective measurement, management, and reporting of water risk and strategy depend on gathering accurate local water data and fostering collaboration with internal and external stakeholders. You can leverage technology to significantly streamline this process.
Refer to the following articles for more information on sustainability reporting, water risks, and water targets.
Waterplan is one of the water risk assessment tools recognized by CDP Water Security.
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