Water splashes onto pensions agenda

Financial Times, 21 September 2009 - Water management is increasingly viewed as a big cost issue for companies rather than just an environmental factor.

The recent move by the Norwegian Government Pension Fund to add water management to its corporate governance investment criteria will only strengthen the trend.

The fund, one of world's biggest, will start next month sending out its newly published investors' expectations document on water management to the 1,100 companies in its NKr2,385bn (£246bn, €277bn, $407bn) portfolio that pose a water-related investment risk.

The fear is that water scarcity, regulations, and higher purification costs could affect company profits. Economic growth, rising population and industrial expansion are driving the demand for water, while climate change, pollution and regulation are affecting supply.

A report by the Pacific Institute on behalf of Ceres earlier this year found that 11 of the world's 14 largest semiconductor factories were located in the Asia-Pacific region, where water quality risks are severe. Firms such as Intel and Texas Instruments need ultra-clean water to make silicon chips. A water-related shutdown at these factories could result in $100m-$200m in missed revenue during a quarter, or $0.02-$0.04 per share.

“Generally there has been a pick-up in attention as to what water management really means to a company,” says Peder Michael Pruzan-Jorgensen, European director for BSR, a global business network and consultancy focused on sustainability. “Gap has made jeans with water use guidelines. The tricky thing with water is that there is no replacement for it. For oil there is.” Norges Bank Investment Management, which manages the Norwegian Government Pension Fund, has identified seven high-risk sectors: the food industry, agriculture, pulp and paper, pharmaceuticals, mining, manufacturing and power production, and the water supply industry.

The fund's new focus on water will not only influence the way it votes the shares it already holds in these areas, but also its long-term evaluation of companies, according to Anne Kvam, NBIM head of corporate governance. She hopes it will influence other funds – which have followed Norway's lead in the past – and that the corporate sector will take the water issue seriously.

“Some of the larger international funds out there will be copying [the fund's] criteria and methods,” says Christine Tørklep Meisingset, head of responsible investment research at Storebrand Investments. “They will look at NBIM because of its size. For us, it makes it easier to address water when engaging with companies.”

Storebrand , a Norwegian insurer managing NKr336bn in assets, took up water risk as early as 1995 when it first established a niche environmental value fund and has been excluding high-risk companies that do not take into account water management since 2001. It is currently the only Norwegian company in the World Business Council.

Calpers, the largest US pension fund, says it has not specifically used water management as a condition for investing in public stock companies, but supports the recommendations in the Ceres report, such as better corporate disclosure on water-related risks. It is also aggressively pursuing water management in the private equity arena, such as a recent $260m commitment to Vinod Khosla's clean tech funds.

Dutch pension fund APG, one of the world's largest pension funds, considers water risk in its integrated investment analysis, in particular for high risk sectors such as the consumer sector. The fund actively engages with its investee companies and participates in stakeholder initiatives, such as the UN CEO Water Mandate, which focuses on developing corporate strategies and solutions to global water issues.

“Water is one of our key sustainability themes as we believe that companies in our portfolio could potentially be exposed to substantial risk related to water shortages or community protests against companies' use of scarce water resources that are also needed for local use,” says Rob Lake, head of sustainability at APG Asset Management.

NBIM plans to publish a compliance report for water management in the first quarter of 2010.

Author Valeria Criscione Publication Date 21 Sep 2009 Document Type News articles Issue/Topic Water Company Storebrand ASA Source Financial Times Include In RSS Business & Sustainable Development News Corporate Social Responsibility News