Many companies in the Nikkei 225 are likely to be exposed to water-related financial risk through their supply chains. Understanding which suppliers are most exposed to water shortages and floods is important in order to secure supplies and stabilise input costs. Infrastructure and contracts that lock in high levels of water use in areas of water stress could face higher-than-forecast costs, lowering future cash flows and earnings.
This research report is part of a partnership between KPMG and Trucost to provide companies with the data and intelligence to make business sense of environmental risks and opportunities.
Key Findings
- Cross-border production and trade by Japanese companies could increase vulnerability to water risk across Asia.
- Supply chains are responsible for three-quarters of the water used by all 225 companies.
- Water intensity varies among Food & Beverage, Personal & Household Goods and Automobiles & Parts companies.
- If suppliers to Personal & Household Goods companies were to pay water prices that reflect water scarcity in Asia, water costs passed through the supply chain could equate to 84% of earnings on average.
- Data on purchasing patterns can reveal which industries contribute most to water use in supply chains. For audio and video equipment manufacturers, water hot spots include suppliers of electronic components and packaging.
- Water scarcity costs could equate to at least 10% of earnings for 32 out of 56 Asian companies analysed.
- Supply chain water risk assessments can be used to secure supplies and stabilise input costs.
For more information, visit the Trucost website.
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