Originally published in The Accountant, 23 June 2015
In the lead-up to the crucial United Nations Climate Change Conference (COP21) in Paris in December this year, where the focus is achieving a legally binding and universal agreement on constraining global warming, we should not lose sight of other critical environmental challenges.
The most obvious of these is the scarcity of water. The United Nations estimates that around 1.2 billion people, or almost one-fifth of the world's population, live in areas of physical water scarcity and a further 500 million people are approaching this situation.
As accountants we know the importance and power of measurement and information in bringing about change. In 2014 CPA Australia, along with KPMG, sponsored an Australian Global Reporting Initiative (GRI) study of global mega-forces impacting upon business risk and strategic opportunity. While the study found that potential water shortages, or a decline in water quality, poses a serious threat to business growth and development, the most startling finding was that by 2030, the global demand for freshwater will exceed supply by 40 per cent.
The report highlighted the interconnected nature of water, energy and food systems coupled with the growing global demand for water and recommended urgent action by both business and populations to become more efficient with their use of water.
This report is not alone in identifying the major impact and importance that the scarcity of water will play in our future. The World Economic Forum (WEF) Global Risks 2015 Report also found that of the 28 global risks surveyed by the WEF, water crises are ranked as eighth in likelihood but more importantly ranked first in impact. The WEF even went further by concluding that "past warnings of potential environmental catastrophes have begun to be borne out, yet insufficient progress has been made - as reflected in the high concerns about climate change adaptation and looming water crises."
As with other global initiatives that are focused on achieving a COP21 consensus outcome, addressing water scarcity demands cooperation and collaboration between government, business and civil society. No single organisation or country can achieve the level of change required.
Turning again to the importance of reporting, CPA Australia commissioned further research on corporate water reporting amongst significant industry users. The purpose of this study was to examine the disclosures made by large Australian corporations about their impact on water. By examining the key trends on water reporting between 2009 to 2014 the report found that the overall depth and quality of corporate water reporting is heavily influenced, not by impact, but by short term considerations. Many of these considerations are related to government requirements and public policy.
There were however some examples of hope and encouragement that were found in the study. The report found that the value of learning was a vital element in creating adaptive systems - in terms of management systems, strategic behaviour and disclosure to stakeholders. What this means is that things can change, and they are. There was good evidence of experimentation and learning by companies on corporate water reporting which shows that there is a real desire to change.
Two factors will be vital in supporting this change. First is a far better understanding of the expectations of governments and information users when it comes to water reporting to set a clear agenda, and second, is the need to build the capacity within companies to be able to undertake and prepare these reports.
Regardless of the outcomes at COP21 later this year, the experience gained by tackling the issue of carbon reduction shows the political momentum, harmonisation of measurement and emergence of generally accepted reporting regimes that can be created in response to global environmental issues. It is becoming increasingly important that these lessons are applied to tackling water scarcity.
We do not have the luxury of deferring to the next generation the responsibility for addressing past and current deficiencies in our economic and business behaviours and reporting systems.
Water scarcity represents a vital challenge for the world, and with a commitment to effective disclosure and corporate action the accounting profession has a central role to play. CPA Australia's research, and a continuing focus on proper reporting, information gathering and verification provides a sound basis to underpin action at the local, national and international level.