BY ANTONY CURRIE

Environmental-activist investors would do well to dive into a new risk pool. Big institutional shareholders have recently persuaded the likes of Glencore, Shell, BP and Equinor to up their game on assessing, reporting and even reducing the risks to their business from global warming. It’s time these investors focus their growing heft on water.

The business of treating and moving water requires a lot of power. In the Australian state of Victoria, water services are responsible for a quarter of greenhouse-gas emissions, with half of that used to keep supplies flowing in Melbourne. In California, where the industry accounts for 20% of energy use, water-conservation efforts earlier this decade reduced power consumption by more than the combined energy-efficiency programs of all investor-owned utilities. It’s hardly a stretch for stock- and bondholders to apply some pressure to the biggest water-sector carbon polluters.

Companies, too, need a kick from their owners to address the business risks from either too little or too much water. Many simply ignore it, or don’t talk about it. Climate-disclosure activist CDP received replies from more than 2,100 corporations to its most recent survey. That’s a 50% improvement in just two years, but even so, just two-fifths of the companies it contacted responded.

Even the information CDP gets sometimes fails to impress. Head of water security Cate Lamb told the audience at World Water Week in Stockholm last week that companies often set meaningless targets, or highlight weak or unsubstantiated efforts on water stewardship.

There’s also a growing sense among some conference-goers that some of the more proactive companies have started resting on their laurels. One attendee at CEO Water Mandate, an association of some 160 businesses that also convened in Stockholm, berated members for too often addressing water issues only in their own facilities and ignoring the broader regional risks.

There’s a lot at stake. U.S. defense company Raytheon, for example, last year told CDP that up to a fifth of its global revenue would be at stake if the flow of the Colorado River basin continues to deteriorate. That’s some rare honesty that investor activism can try to elicit elsewhere.

First published Sept. 3, 2019

IMAGE: REUTERS/Michaela Rehle

BY ROB COX AND GEORGE HAY

Water, water everywhere, nor any drop to drink. That, to borrow from Coleridge, sums up Amber Capital’s analysis of French utility Suez’s approach to capital. The 8 billion euro operator of water and waste-treatment facilities around the globe is a juicy target for the activist investor. What’s less obvious is how Amber’s suggestions will put the group, whose history includes the building of the eponymous Egyptian canal, back on track.

Amber aimed its divining rod ably in choosing Suez for its roughly $150 million bet. The company helmed by Bertrand Camus has been a stock-market laggard. Suez trades below the price at which it debuted on the bourse as a spinoff from the merger that created Engie, the energy group that’s now its largest shareholder. And it has woefully trailed rival Veolia Environnement, whose shares have returned over 100% to their owners over the past five years, including dividends, compared to under 20% at Suez.

The overriding reason, by Amber’s reckoning, has been an empire-building strategy guided by unambitious return targets. Over a decade of shopping, Suez’s capital base nearly doubled to almost 19 billion euros, resulting in a 27% increase in shares outstanding but with no growth in net income or in per-share earnings and dividends, says Amber. The result is a return on capital employed that’s no greater than Suez’s weighted average cost of capital.

Amber’s timing is propitious. Camus only became chief executive in May. By making its case more thoughtfully than aggressively, Amber presents itself as his ally in shifting strategy. It also gives Camus support in handling Jean-Louis Chaussade, his predecessor who against the angels of better corporate governance became chairman. Some nice words about Engie’s own turnaround in its letter should also buy Amber good will with Suez’s key shareholder.

Aiming for higher returns on capital, as Amber proposes, is easier said than done. But it should force Suez to divest weaker elements of its portfolio and turn management attention to businesses that can benefit most from operational improvements. If all else fails, Amber’s next letter can simply recycle the investment-banking pitchbooks arguing that Veolia, with a market cap of 13 billion euros, should absorb its cross-town laggard.

First published July 18, 2019

IMAGE: REUTERS/Christian Hartmann

BY ANTONY CURRIE

Tyson Foods has decided to save much-needed water-use reforms from the slaughterhouse. On Tuesday, America’s largest meat producer said it has committed to improve water, soil and fertilizer practices on 2 million acres of its suppliers’ land by 2020. The announcement comes less than two months after the company’s founding family used its supervoting stock to nix a shareholder resolution along the same lines.

At February’s annual meeting, 63 percent of the company’s independent shareholders voted in favor of the resolution, which called on executives to implement a water-stewardship program to better deal with animal effluent and chemicals produced by both Tyson’s own processing plants and the 11,000 farmers in its supply chain. But the 10 votes allotted to each Class B share allowed the family to reduce the overall support for the resolution to just 16 percent.

Tyson, which produces one-fifth of the nation’s pork, chicken and beef and tips the scales at a $26 billion market capitalization, has faced and beaten a similar shareholder effort in each of the past several years. Right after the most recent vote, though, the company sat down with investors to hear their concerns.

The result is the largest-ever commitment to sustainable grain – in this case, corn – production by a U.S. meat company. It doesn’t address everything shareholders were pushing for. As yet, for example, there’s no corresponding improvement plan for Tyson’s own plants or the farmers who rear the animals it buys.

Nor does the new policy deal with most of the water-management criticisms leveled at the company by not-for-profit investor lobby group Ceres. Tyson’s lack of an assessment of future water conditions and inadequate board and executive oversight of water use, among a raft of other shortcomings, earned it a score of just 11 out of 100 in Ceres’ recent “Feeding Ourselves Thirsty” report.

Tyson may have more to do. But at least the governance-challenged company is no longer chickening out of listening to its shareholders – and taking action.

First published April 4, 2018

IMAGE: REUTERS/Mike Blake

BY ANTONY CURRIE

Tyson Foods investors want to make the meat company a standard bearer for smart water management – just not the investors who count. At least 63 percent of independent shareholder votes cast at the $27 billion meat producer’s general meeting on Wednesday voted in favor of a resolution to manage pollutants better. Supervoting stock, however, has turned the promise of water reform into a washout.

The proposal at stake was hardly over the top. The American Baptist Home Mission Societies, and a handful of others, wanted a policy to deal with the animal effluent and chemicals produced by both Tyson’s 79 processing plants and the 11,000 or more farmers in its supply chain. That would help stop the company from exceeding wastewater limits, and incurring fines. The Tyson family, which has 70 percent of the company’s votes with an economic stake of only around one-fifth, had other ideas.

Tyson isn’t exactly ignoring water issues – it is conducting a geographic water-risk assessment of its U.S. operations and it requires suppliers to meet regulatory standards, among other steps it has taken. Trouble is, there’s a lot it has not done. According to Ceres, a not-for-profit investor environmental lobby group, it has not assessed future water conditions; it lacks watershed-protection plans; it doesn’t collect data from suppliers; and it has failed to ensure adequate board or executive oversight of water use or linked executive pay to water stewardship.

All in, Ceres awarded Tyson Foods just 11 out of 100 in its recent “Feeding Ourselves Thirsty” assessment of 42 of some of the world’s largest food, beverage, meat and agricultural-products companies, ranking it eighth from bottom. That’s atrocious for a business that relies so heavily on water – not least since many of its plants are in water-scarce regions like California and Texas.

While dual-class shares are common among entrepreneur-led young tech companies like Twitter and Facebook, it’s not clear why an 83-year-old food group still feels the need to limit shareholder rights. This example of being outvoted by the minority might make independent shareholders appreciate that more keenly. But even so, Tyson’s dismissal of the shareholder proposal is a wasted opportunity to show that even governance-challenged companies can set a decent environmental standard.

First published Feb. 8, 2018

IMAGE: REUTERS/Ross Courtney

BY ANTONY CURRIE

Water is set to become a more serious risk for companies and investors. It’s already recognized. World Economic Forum attendees named H2O a top-three risk two years running. And two-thirds of the world’s largest companies worry about how constraints may affect their business, according to environmental research firm CDP. Few, though, are well prepared for problems. That is set to change.

A few high-profile droughts have helped shake off some complacency. Taps in Brazil’s Sao Paulo may run dry as early as March. California’s supply is low after three years of scarce precipitation. The likes of Illinois and Indiana are starting to use their relative abundance of water to lure companies to their states.

Some firms have taken action. SABMiller has a goal of reducing water used in its breweries by a quarter by 2015. Coca-Cola used 2.08 liters of water for every liter of its own drinks in 2013, down 23 percent since 2004, and wants to be water neutral by 2020. Lockheed Martin, Kimberly-Clarke, AstraZeneca, AT&T and others have implemented water-saving strategies.

That’s not always enough. Often, a company’s idea of water risk is very narrow, CDP points out in a 2014 survey of big companies. Only two-fifths include other local users in their assessments. There’s a similar myopia among those investigating what hazards companies in their supply chain might face – whether shortages, floods, pollution or what have you. Only a quarter consider their water needs in the context of other claims on the same river, for example.

This can leave them exposed, often expensively. Barrick Gold invested $5 billion in its Pascua-Lama mine before putting the development on hold in 2013 after problems with pollution. BHP Billiton had to spend almost $2 billion to build a desalination plant to ensure enough water for a Chilean operation.

Joint action can yield better results. A recent report by the Nature Conservancy outlines how restoring forests and reducing pollution along watersheds can quickly increase the supply of usable water for everyone.

Shareholders are cottoning on. Almost 600 investors representing $60 trillion of assets under management now want CDP’s data on corporate water use, for example – a more than threefold increase since 2010. The internet gives both companies and anyone monitoring them more information than ever, too. The financial hit from actual shortages may be what makes companies change. And if they don’t, increasingly well-informed activist investors may force the issue.

First published Jan. 5, 2015