Accounting for Risks: Identifying Water Risks in the Food and Beverage Industry Using an Ecosystem Services Benchmarking Framework

Abstract

Global population growth and economic development has placed unprecedented demand for freshwater resources. However the supply of freshwater is becoming increasingly uncertain, due to the variability of the hydrological cycle, climate change and ecosystem degradation. This thesis questions the effectiveness of current sustainability frameworks in screening for material water risks. A new framework was developed based on an ecosystem perspective of water resources. The advantage of this approach is that it focuses on the valuation of water through the context of risk and encourages broader ecosystem perspective to managing those risks throughout the value chain and within a river basin. The study applied a mixed method approach to examine the interaction between Corporate Water Risk Management with general sustainability performance (using KLD Social Ratings) and with Corporate Financial Performance. A sample of sixty-one food and beverage firms was compiled from a universal database that combined data from the Compustat database and KLD (2012) Historical Summary. Their corporate disclosures were appraised using the Corporate Water Risk Management framework. Regression analysis showed significant and positive relationships with accounting performance measures but non-significant association with market measures. Firm size was shown to have a strong influence on the accounting performance correlations. For the market measures, it was determined that there are many factors influencing market values and thus more sophisticated models are required to isolate the relationship between CSP activities and market performance.