Building an investor coalition to engage with companies that can do better

At Pictet, we take a multifaceted approach to being a responsible firm. One example is our partnership with Ceres.
Ceres will track company progress with a benchmark analysis, which will also inform investors like Pictet in their dialogues with companies and help elevate best practices.
— Kirsten James, Programme director of water at Ceres

The partnership harnesses philanthropy, active ownership and thought leadership to help tackle the impending global watercrisis. In this interview with Ceres’ water programme director Kirsten James, we learn more about the Valuing Water Finance Initiative. Pictet is among its 64 founding signatories.

Ceres is a non-profit sustainability organisation that works with investors, companies, policymakers and regulators towards solutions for the world’s most pressing sustainability issues. They are a key stakeholder, for example, behind an initiative called Climate Action 100+. This initiative uses the power that investors have to put pressure on the biggest corporate greenhouse-gas emitters to take action on climate change. In 2021, the Pictet Group Foundation gave Ceres financial support to achieve something similar for the topic of water. How could investors put pressure on companies that pollute or use a lot of water to improve their practices?

At the same time, Pictet ESG experts from across the Group contributed to identifying the initial target companies and expectations for the Valuing Water Finance Initiative, a global, investor-led effort to engage with 72 companies with a high-water footprint.

Interview

Did you know?

Pictet is among a significant and growing portion of the finance community that promotes engagement over exclusion in our efforts to effect positive change through investments. This means that rather than applying blanket bans to ’dirty‘ sectors or companies (those lagging on environmental or social factors), we prefer to initiate a dialogue with its management to push for improvement.

For instance, the Pictet-Water Fund has been investing in solutions that bring water to people and industry in the right quality and quantity for the last two decades. While that’s great for meeting the needs of companies and countries already seeking to address water issues (notably scarcity and pollution) what about the companies that are doing the opposite (causing scarcity and pollution)? By engaging with these firms, either bilaterally or via a collaboration with other investors, like the Valuing Water Finance Initiative, we hope to get those companies with high water footprints to adopt changes that will better protect the world’s water systems.

 

 

Kirsten James, the programme director of water at Ceres, speaks to Melanie Larkin, Senior ESG Development Manager at Pictet, and shares some insight as to how the water engagement initiative will proceed.

Have you notified the 72 target companies you wish to engage with?

Mindy Lubber, CEO and president of Ceres, sent a letter to the companies’ CEOs and relevant staff informing them of their firms’ inclusion on the focus list. The letter noted investors’ concern with the extensive financial risks presented by the water crisis and their belief that it is their fiduciary duty to enter into discussions and work with these companies to address these risks.

The letter also highlighted that this work will focus on actions to more responsibly steward and protect water resources in their business operations and global supply chains, as per the Corporate Expectations for Valuing Water (see below).

Have you received many responses?

We’ve already heard from some companies wanting to learn more and have had initial conversations to explain the Valuing Water Finance Initiative in more detail. We also developed a Company FAQ explaining why companies were included on the focus list. We are starting to see positive responses with companies beginning to question how their current practices align with the Corporate Expectations for Valuing Water.

Do you have an initial sense of whether some companies will be more willing to engage than others?

We recognise companies are indifferent places in their water stewardship journeys. For example, a 2021 Ceres’ report, Feeding Ourselves Thirsty, analysed and scored the largest food companies on how they are managing water risks (e.g., scarcity, flooding, drought). Scores varied widely based on factors such as how, or if, companies are taking water risks and opportunities into account in major business planning and investment decisions. Simply put, some of the companies in this benchmark have already prioritised acting on water risk and others have not.

Can you walk us through an engagement approach in practice?

Ceres water experts will provide investors like Pictet with research on where companies are in relation to the Corporate Expectations for Valuing Water and what gaps exist. Investors will decide how to use that research and data to engage companies around those expectations and discuss how they would like to see companies meet those goals.

Ceres will track company progress with a benchmark analysis, which will also inform investors like Pictet in their dialogues with companies and help elevate best practices. Investors may also decide to pursue tactics such as shareholder resolutions to further drive change at these companies.

What does success look like in your view?

Within the next five years, we hope to see these companies make significant progress towards fulfilling the Corporate Expectations for Valuing Water and ensuring more resilient and sustainable water supplies globally. Over time, we hope to add companies beyond those initially included. The water crisis is playing out dramatically, so we need more investors to come to the table to push companies to take action on water risk.

Corporate Expectations for Valuing Water

Water Quantity
Companies do not negatively impact water availability in water-scarce areas across their value chain.

Water Quality
Companies do not negatively impact water quality across their value chain.

Ecosystem Protection
Companies do not contribute to the conversion of natural ecosystems critical to freshwater supplies and aquatic biodiversity and actively work to restore degraded habitats that their businesses depend upon.

Access to Water and Sanitation
Companies contribute to the social, economic and ecological resilience of communities they interac with by contributing to achieving universal and equitable access to water, sanitation and hygiene across their falue chains.

Board Oversight
Corporate boards and senior management oversee water management efforts.

Public Policy Engagement
Companies ensure that all public policy engagement and lobbying activities are aligned with sustainable water resource management outcomes.

Download Ceres' document to find out more on expectations

 

Glossary of terms

The Valuing Water Finance Initiative is a global, investor-led effort to engage with 72 companies with a high-water footprint. A company’s inclusion on this focus list is not related to its water use per se, but rather its presence within water-intensive industries (such as food, beverage, apparel, tech), and its potential to play a pivotal role in addressing water risks and opportunities.

Water risk refers to the possibility of an entity experiencing a water-related challenge (e.g., water scarcity, water stress, flooding, infrastructure decay, drought). The extent of risk is a function of the likelihood of a specific challenge occurring and the severity of the challenge's impact.

Water stewardship is defined as using water in a way that is socially equitable, environmentally sustainable and economically beneficial.

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