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NBIM Investor Expectations:

Water Management

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Norges Bank Investment Management (NBIM) is responsible for
investing the assets of the Norwegian Government Pension Fund
– Global. The exercise of NBIM ownership rights shall safeguard the
long-term returns of the fund and is based on the UN Global Compact
and the OECD Guidelines for Corporate Governance and Multinational
Corporations.

The NBIM Investor Expectations: Water Management is based on


available best practices and standards regarding water management.1

As an investor and shareholder, NBIM will present our expectations to


the Board of our investee companies. We expect the Board to ensure
that necessary policies and activities are implemented throughout the
company, and will hold the Board accountable accordingly.

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Examples of references: International Covenant on Economic, Social and Cultural Rights (ICESCR) – Right
to water, UNESCO – The World Water Assessment Programme (WWAP), UN Global Compact – CEO Water
Mandate, Ramsar Conventions on Wetlands, Water Footprint Network, Alliance for Water Stewardship,
Stockholm International Water Institute (SIWI), Pacific Institute – Water and Sustainability Program.

ISBN 978-82-7553-519-9 NBIM Investor Expectations: Water Management (printed)


ISBN 978-82-7553-520-5 NBIM Investor Expectations: Water Management (online)
Print: 07 Lobo Media
Design and illustration: Burson-Marsteller/Erik Sand

Photo: 123RF, iStockphoto

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Purpose
The NBIM Investor Expectations: Water Management specify
investor expectations for corporate performance with regard to
water management. The Expectations are directed to companies
with operations or value chains in sectors and regions that are
exposed to water scarcity, water pollution and other water-related
risk.

Water scarcity on a global scale represents a financial risk to the


fund. Economic growth, industrialisation and population growth are
driving the increasing demand for water, while factors such as climate
change, pollution and regulation are affecting the supply and costs
related to water.

The NBIM Investor Expectations: Water Management will serve as a


reference for long-term investors and can be used as an indicator of
best business practices by corporations globally. The primary function
of the Expectations is not to blacklist or rank companies, but to serve
as a point of departure for constructive dialogue between investors
and companies, and to set a clear standard which companies globally
must be expected to live up to.

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Why is water management
an issue for investors?
For a diversified investor with a long-term horizon and broadly
invested in sectors exposed to water-related risk, responsible
corporate water management is important.

• Water scarcity may affect business profitability negatively and also


change the competitive landscape. Water as a resource is affected
by factors such as drought, flooding, pollution, sanitation, infra-
structure, and climate change. Managing the physical risk related
to water and securing access to the quantity and quality of water
needed for production may become more difficult and more costly
in the future. Water shortage will probably lead to higher energy
costs, to increased competition between various actors for access
to water, to higher costs for waste water treatment and water
search, higher water tariffs, introduction of various pricing mecha-
nisms for water and to regulatory changes.

• Boards must as part of their fiduciary responsibility towards their


shareholders, consider the financial impact of environmental issues,
including water scarcity and other water-related risk.

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• Corporate behaviour that harms the societies and environments in
which companies operate threatens the legitimacy of companies
and markets. Measures to increase the long-term sustainability
of the market system – through general regulations as well as on
company level – are therefore important for global investors with
long-term investments. This includes measures which are designed
to improve the environmental and social impact of water usage in
relation to business activities. Poor management of water risks
may influence negatively a business license to operate.

• From an investor perspective, unwillingness to assume corporate


responsibility in addressing the issue of water may be an indication
of weak corporate management in dealing with externalities.

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Expectations
Companies must take a long-term approach to the issue of water
and water management and should be expected to commit to
sustainable water management.

Several of the requirements below will be best met by cooperation


with local, national, and international government bodies, or in coop-
eration with NGOs and civil society.

Furthermore, several of our requirements listed below can be linked


to broader social or environmental policies and programmes, and be
integrated therein.

The NBIM Expectations: Water Management are divided into three


main categories and outline what we consider important elements
in a corporate water management strategy.

A. Clear Water Management Strategy


The potential economic impact of water management must be inte-
grated into the company’s strategic business planning and decision-
making. Investors should be able to assess how water scarcity could
negatively affect a company’s performance. This means understanding
the full extent of water-related risks to a company and how these
risks may result in higher costs of production and production/supply
chain disruptions. Water as an input and output factor in the produc-
tion process needs to be assessed and companies should conduct a
water footprint analysis covering direct operations as well as supply
chain and products and services. Companies also need to specify
priorities for action regarding their water management and reducing
water management related risks.

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Requirements
• Companies must be expected to have a clear strategy regarding
water management.

• Continuous risk analysis:


Does the water footprint analysis account for both direct and
indirect water use and discharge, and encompass quantity,
quality as well as the impact on local communities and
ecosystems?

Has the company conducted water risk analysis related


to its direct operations and/or supply chain, products and
services, and/or business partners?

Does the analysis take into consideration that water scar-


city is region-specific and include local hydrological, social,
economic and regulatory factors?

• Water risk analysis must be transparent. Companies should use


broadly and internationally accepted measurement systems and
water reporting indicators.2

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Such as the Global Reporting Initiative (GRI) G3 Guidelines.

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B. Sustainable Water Management
This expectation is based on the assumption that companies in high
risk sectors and/or regions that have the best systems and technolo-
gies to deal with water challenges are better positioned to mitigate
water-related risk, identify new market opportunities and create share-
holder value. Companies must be expected to participate in relevant
research, and explore and exploit opportunities to develop produc-
tion processes, products and services that improve water resource
management. Sustainable water management also means including
the social and environmental impact on and needs of the surrounding
communities of the companies’ direct operations, supply chain and
products and services.

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Requirements
• Preventive and corrective action plan for identified risks.
What measures have been taken to respond to, or pre-
vent that business operations will be negatively affected by
changes in any relevant water regime, changes in regulation,
in water supply, quality, and price increases?

Does the company disclose clear targets and key perform-


ance indicators for water conservation, for improved quality
in water and waste-water treatment and for efficient water
management in direct operations as well as supply chain
and products and services?

Have appropriate investments in water efficiency been un-


dertaken at company level and/or supply chain?

• Supply chain management systems.


Has the company implemented adequate management
systems to monitor and mitigate risks in the supply chain?

How does the company promote sustainable water manage-


ment in the supply chain?

• Monitoring systems for environmental and social impacts of activi-


ties with regard to water, including sustainable water measures,
must be in place.
Does the company have on-the–ground programmes in place
to ensure that local populations retain necessary access to
water?

• Consultation and/or collaboration with stakeholders.


Does the company consult and/or collaborate with communi-
ties, NGOs and other relevant organizations for procuring
the necessary information and research, and in building
on-the–ground programmes?

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C. Governance structure
In order to implement these Investor Expectations, companies must
have a corporate governance structure that facilitates realistic strate-
gies and responses to the issues raised herein. As an investor, it is not
our role to suggest in detail how companies organize their board and
management structures. We do expect, however, that this governance
structure will include board-level input and discussions.

There are also other elements to consider: board committee struc-


tures, management responsibilities, risk management and internal
control processes, reporting lines, timelines and internal sanctions. We
have formulated our overall requirements so as to reflect the different
ways in which this can be put into practice within each company.

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Requirements:
• A clear water management policy must be in place and disclosed.

• There must be a transparent and well functioning governance struc-


ture for implementing and overseeing water management policies
and programmes.

• Reporting must be transparent, and must reflect not only short-term


investor concerns, but also the concerns of long-term, diversified
investors.

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NBIM Investor Expectations:
Water Management
The NBIM Investor Expectations: Water Management specify investor expectations for corporate
performance with regard to responsible water management. NBIM will present our expecta-
tions to the Board of our investee companies, and expect the Board to ensure that necessary
policies and activities are implemented throughout the company.

The NBIM Investor Expectations: Water Management are divided into three main categories
and outline what we consider important elements in a corporate water management strategy.

Expectations
A. Clear Water Management Strategy
Investors should be able to assess how water scarcity could affect companies operations/
profit. Water as an input and output factor in the production process needs to be assessed and
companies should conduct a water footprint analysis covering direct operations, supply chain
and products and services. Understanding the full extent of water-related risks to a company
involves assessing factors outside the company’s immediate operations.

B. Sustainable Water Management


Companies in high risk sectors and/or regions that have the best systems and technologies
to deal with water challenges are better positioned to mitigate water-related risk, identify new
market opportunities and create shareholder value. Sustainable water management means
including the social and environmental impact on the surrounding communities of the compa-
nies’ direct operations and supply chain.

C. Governance structure
Corporations must have a corporate governance structure that facilitates realistic strategies and
responses to water management. The following elements should be considered: board-level
involvement, board committee structures, management responsibilities, risk management and
internal control processes, reporting lines, timelines and clear targets.

Requirements:
• Clear strategy regarding water management
• Water footprint and risk analysis
• Preventive and corrective action plan for identified risk
• Supply chain management systems
• Monitoring systems for environmental and social impacts of activities with regards to water,
including sustainable water measures
• Consultation and/or collaboration with stakeholders
• Clear policy on water management
• Transparent and well functioning governance structure
• Transparent performance reporting

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