As Water Tables Fall, Investors' Concerns Rise(A)
Mark Twain noted that in the Old West, “Whiskey is for drinking. Water is for fighting over.” Halfway through 2003, which the United Nations declared the International Year of Freshwater, Twain’s observation could apply to much of the globe. Rapid population growth and skyrocketing industrial and agricultural demands for water are causing a state of chronic water scarcity in many regions of the world. The UN estimates that one-third of the world’s population now lives in water stressed conditions, a figure that will rise to two-thirds by 2025. As the taps run dry, the world faces more conflicts over water use. Communities in El Salvador, India, and Michigan (to name a few) are fighting companies’ use of local water. Bechtel’s controversial efforts to privatize municipal water supplies in Cochabamba (Columbia’s third largest city) and dramatically raise water rates led to angry demonstrations and armed crackdowns that killed one and injured hundreds.
Concerned about the social, environmental, and business risks posed by growing water scarcity around the globe, this fall Trillium Asset Management Corporation launched a new initiative to focus on this key issue. As the first step in this new initiative, we partnered with Real Assets Investment Management, Inc. to file a resolution asking PepsiCo to report on the business risks posed by water scarcity, the first resolution of its kind. At PepsiCo’s May 7 annual meeting, the resolution received 8 percent support from shareholders, more than double the threshold needed to re-file the resolution next year. Supporters of the resolution included major institutional investors like the New York State Common Retirement Fund, which wrote us, “We understand that community concern about environmental risks involving corporate water use can have negative consequences in terms of a corporation’s public reputation and long-term financial performance.” (Click here to read a short background paper which we circulated to major institutional investors seeking their support for the resolution.)
PepsiCo asked the U.S. Securities and Exchange Commission for permission to keep the measure from coming to a vote, arguing that it already provided some information on water conservation in its environmental report and did not need to report further. In response, Real Assets and Trillium Asset Management argued to the SEC that the business risks PepsiCo faces due to dwindling supplies of freshwater resources are real, and that investors need more strategic information from the company to accurately assess this potential threat to shareholder value. The SEC agreed and denied PepsiCo’s request to exclude the measure from the proxy ballot.
We also raised concerns about water scarcity with senior managers at Coca-Cola, but did not pursue a shareholder resolution after the company shared with us its plans to issue a report later this year that will include a specific discussion of water-related business risks as well as key performance indicators and goals for addressing water scarcity. We focused our initial efforts on PepsiCo and Coca-Cola this year, because those companies face special risks and visibility from water scarcity, due to their bottled water brands. However, we certainly think water scarcity is a critical issue that should be addressed by companies across a wide range of sectors, from food to high technology to consumer products. We’ll be working in the coming year to broaden our advocacy and outreach efforts to include additional companies.
In an article on our PepsiCo resolution, the Financial Times of London reported, “The resolution, one of the first of its kind, shows that water is becoming an increasingly important environmental issue.” We certainly think so, and are working to make sure that key companies that play a role in the crisis of water scarcity think so too.