Water management is one of the world's largest industries, and increasingly is seen as one of the next great investment opportunities. But according to a recent study, the industry--at least when it comes to water utilities--needs to provide better environmental, social and governance (ESG) disclosure to investors.
A study from the Interfaith Center on Corporate Responsibility (ICCR) scored 12 public and private utilities on 21 key disclosure issues such as water scarcity and climate disruptions, governance and anti-corruption policies, and equitable access and environmental fines.
The highest-rated utilities were the Department of Water and Energy, New South Wales, in Australia (a score of 55) and the City of New York Department of Environmental Protection (50). Both are public.
The two lowest disclosure ratings were two investor-owned U.S. utilities. One, Indiana American Water (-45), is a subsidiary of American Water, the country's largest investor-owned water company. The other is Veolia Water North America (-53), a division of the French company Veolia Environment. Both parent companies trade on the New York Stock Exchange.
The report also examined reporting gaps among water utilities and calls for creating a "data commons" for drinking water and sanitation utilities.
"Few water utilities, public or private, report on comprehensive quantitative and qualitative ESG indicators that would allow meaningful performance benchmarking, despite the fact that the protocals and Internet-based tools to facilitate this kind of reporting do exist," said Laura Berry, ICCR's executive director.
"In the absence of mandated disclosure requirements," Berry said, "it falls to the [responsible investing] 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."
For ESG-oriented investors, the implications are big because the investment opportunities in the capital-intensive water industry are potentially huge. The market for water products and services is estimated to be $400 billion to $500 billion annually, and there's a massive need to both replace aging infrastructure in developed countries and to build infrastructure to provide clean, safe drinking water in developing nations.