Liquid Assets: Responsible Investment in Water Services

Leslie H. LoweEnergy & Environment Program

Interfaith Center on Corporate Responsibilitywww.iccr.org

•A leader of the corporate social responsibility A leader of the corporate social responsibility movement for 38 years. movement for 38 years.

•275 faith-based institutional investors with 275 faith-based institutional investors with over $100 billion in collective assets under over $100 billion in collective assets under management.management.

•A network of responsible investment firms, A network of responsible investment firms, public pension funds, foundations, and labor public pension funds, foundations, and labor unions.unions.

•Each year ICCR members, associates and Each year ICCR members, associates and affiliates sponsor over 200 shareholder affiliates sponsor over 200 shareholder resolutions on major social and environmental resolutions on major social and environmental issues. issues.

“We will seek appropriate disclosure on ESG issues by the entities in which we invest.”

Over 180 institutions, with collective assets exceeding $10 trillion under management, have signed on to the PRI.

“Expanding access to water and sanitation is a moral and ethical imperative rooted in the cultural and religious traditions of societies around the world and enshrined in international human rights instruments.” — Millennium Project Task Force on Water and Sanitation.

A child in the developed world consumes 30-50 times more water than a child in the developing world where 6,000 people die each day of water-related disease, most of them children under five.

— UNESCO Water Facts

• $400 billion to $600 billion needed for global water infrastructure investments in the next two decades [World Bank]; $111 billion to $180 billion per year required to meet MDG for sanitation by 2015 [UNESCO]. • $202.5 billion investment needed over the next 20 years in U.S. wastewater facilities and an additional $122 billion is needed to ensure safe drinking water supplies. [U.S. EPA]

Millennium Development Goals (MDG)

Goal 7, Target 3: Halve, by 2015, the proportion of the population without sustainable access to safe drinking water and basic sanitation.

Photo: ClaudiaD / iStockphoto

Photo: NASA

Less than 3% of the Earth’s water is freshwater. Of that, less than 0.5% is accessible to plants, animals and humans.

There is no more freshwater today to sustain a population of 6 billion people than there was in the year 1 BCE when the global population was estimated to be 250 million people.

Freshwater Availability: 1961-1990

These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, Germany.Germany.

Freshwater Availability: 2020s

These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, Germany.Germany.

Freshwater Availability: 2050s

These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, Germany.

Freshwater Availability: 2070s

These maps are reproduced by courtesy of Prof. Martina Flörke of the Center for Environmental Systems Research, University of Kassel, Germany.

Photo: www.tourlewiscounty.com

Depleting Groundwater:

•North America's largest aquifer, the Ogallala (extending from Texas to South Dakota), is being depleted at a rate of 12 billion cubic meters (bm3) a year. Total depletion to date amounts to a volume equal to the annual flow of 18 Colorado Rivers.

•Between 1991 and 1996, the water table beneath the north China plain fell by an average of 1.5 meters a year.

•More than half of Europe's cities are exploiting groundwater at unsustainable rates. Chronic water shortages are already affecting 4.5 million people in Catalonia.

-- Credit Suisse, Water Strategy.

Photo: http://cropwatch.unl.edu.

Irrigation accounts for 70% of global water withdrawals and 90% of global water consumption.

The proportion of the population in urban areas worldwide is expected to rise from 48% (3 billion people) in 2003 to over 61% (5 billion people) by 2030 – with most of the growth in the cities of Africa and Asia.

Photo: Abenaa / iStockphoto

Urban households that have sewerage connections:• 18% of urban households in Africa• 35% of urban households in Latin America• 45% of urban households in Asia• 92% of urban households in Europe• 96% of urban households in North America

Photo: http://envis.maharashtra.gov.in/envis_data/

Desire for development is infinite, but water resources are finite, so sooner or later the lack of sufficient water will set limits on growth.

– Ma Jun, China’s Water Crisis.

“How will people who can’t afford food pay for water?”

— An African Diplomat.

Photo: Sean Warren / iStockphoto

• Full cost recovery for water services raises ethical concerns when poor people are priced out of the market for this necessity of life.

• When pricing “eco-system services,” who speaks for the frogs, the fish and the organisms that may play a vital but as yet undiscovered role in the ecological order?

• Water and sewerage services are natural monopolies where the discipline of market competition is absent and regulation is needed to ensure high quality and fair pricing. Privatization merely replaces a government monopoly with a private one.

According to the World Bank:

• 20% to 40% of water sector finances are being lost to dishonest and corrupt practices”

• 50% of water-related firms in emerging economies pay bribes for public procurement practices and,

• Among companies from OECD countries, the figure is 45 percent.

How can governments that are too corrupt or incompetent to operate a public utility be trusted to handle the procurement process for a lucrative monopoly or to effectively regulate private service providers?

It is:•Essential •Non-substitutable•Scarce, finite•Fugitive•Indivisible, part of a system •Location bound •Bulky and difficult to mobilize•Prone to market failure •A public good that has aesthetic , spiritual and cultural value

Drinking water and wastewater utilities, public and private, are entrusted with management of essential services affecting human health, community development and the water commons. They should, therefore, be required to demonstrate to all stakeholders their competence in carrying out these important responsibilities.

Unfortunately, disclosure of consistent, comprehensive and comparable performance data on environmental, social and governance issues is the exception not the rule in the water services sector.

— Liquid Assets: Responsible Investment in Water Services

Table 1. ESG Indicators

Governance Indicators: corporate-wide policies applicable to local utilities

C.1 Corporate governance policies addressing bribery and corrupt practices.

C.2Assessment of the impact that climate change may have on water resources, physical assets and future operations.

C.3Policies regarding the human right to water and access for low-income members of the community to drinking water and/or sanitation services.

C.4 Stakeholder engagement practices.

C.5Policies and procedures for securing community consent and maintaining social license to operate.

ESG Indicators

Performance Indicators: for local utilities operated or controlled by the reporting entity

L.1 Areas of operation experiencing or likely to experience water stress or water scarcity.

L.2 Water resource management policies, goals and implementation systems.

L.3 Analysis of population demographics and projected growth by sector

L.4 Size and condition of the physical system

L.5 System operating costs.

L.6 Volumes of water withdrawn (abstracted), delivered, and unaccounted for.

L.7 Total energy used and percent supplied from renewable sources.

L.8 Compliance with regulatory standards for drinking water quality and/or wastewater

L.9 Percent of sewage treated and volume of wastewater reused or safely discharged

L.10 Percent of properties (households) with water and sanitation connections.

L.11 Percent of properties with operating meter.

L.12 Revenue collection and percent of accounts delinquent or in arrears.

L.13 Cost of basic drinking water supply (e.g., m3 per person per day).

L.14 Cost of water and sanitation services (as % of income for poverty level households).

L.15 Frequency of service and service disruptions lasting more than 24 hours.

L.16 Complaints received and average response times.

Table -2. Utility Report Scoring

3Comprehensive, comparable and consistent data clearly presented; relevant goals and policy statements provided.

-3 No mention or discussion of the topic.

2Data not comparable or not clear; scope or application of policy unclear.

-2Topic raised and discussed in general manner, unrelated to operational goals or challenges.

1Data inappropriately aggregated, disaggregated or not consistent; wide variation in disclosure for operating utilities.

-1Isolated cases presented without context or sufficient supporting data to indicate systematic management approach.

Bar Graph #1 – Environmental, Social and Governance ContentThis figure shows the score of each of the 12 water utilities surveyed for this report for the environmental, social and governance content of their Internet-based disclosures.

Bar Graph #2 – Climate ChangeThis figure shows the scores for the 12 water utilities surveyed for disclosure regarding climate change and its potential impacts on water resources, physical assets and future operations in water stressed areas.

Bar Graph #3 -- Water Scarcity This figure shows the scores for the 12 utilities surveyed for disclosure of areas of operation where water resources are scarce or stressed or likely to be so in the near or long term.

Bar Graph #4 – Governance This figure shows the scores for the 12 water utilities surveyed for disclosure of their good governance and anti-corruption policies.

Bar Graph #5 – Water Quality This figure shows the scores for the 12 water utilities surveyed for disclosure of water quality compliance reports for drinking water and/or wastewater, including their record of fines and violations.

Bar Graph # 6 – Sewage Treatment This figure shows the scores for the 12 water utilities surveyed for disclosure regarding their sewage treatment operations and volume of wastewater returns.

ICCR Calls For An International Data Commons for Water

In the absence of mandated disclosure requirements, it falls to the responsible investment community to use its considerable financial power to raise reporting standards in the water services sector so that capital can be rationally allocated to those enterprises – whether public or private – most capable of meeting the extraordinary water challenges.

Creating a Data Commons for Water

A publicly accessible, web-based Data Commons for Water modeled on the World Bank’s International Benchmarking Network for Water & Sanitation (www.ib-net.org) will: • Empower civil society stakeholders with information to hold local water utilities accountable for provision of affordable, equitable, high quality service and sound stewardship of water resources.

• Develop robust datasets based on standardized performance metrics and reporting protocols for evaluating and benchmarking management of non-financial risks that may undermine financial performance.

• Foster competition among firms based on sustainable environmental practices, stewardship of water resource, customer satisfaction, and good community relations by spotlighting leaders and laggards in these areas.

Creating a Data Commons for Water

• Improve valuation of equity and debt securities of both public and private water utilities by providing comprehensive data on whether improved ESG performance by water utilities leads to better financial performance, when and under what circumstances.

• Provide ESG performance data to help responsible investors identify opportunities for investment in water services that will support local and regional water capacity and advance the Millennium Development Goals (MDG) for drinking water and sanitation.