Environment: Drought and Investors.:

http://www.kiplinger.com/businessresource/forecast/archive/drought_impact_on_firms_gains_scrutiny_080603.html
Drought's Impact on Businesses Gaining Scrutiny
Lenders, investors and customers are becoming increasingly aware of how water shortages can be a negative for businesses.

By Jim Ostroff, Associate Editor, The Kiplinger Letter

June 3, 2008
RELATED FORECASTS

Droughts plaguing many parts of the U.S. are nabbing the attention of lenders and investors. They are zeroing in on businesses' exposure to water supply risks and how they might affect customer service and costs. Power plants, food processors, mining companies and semiconductor makers could see disruptions that hurt the bottom line and their reputation with customers and investors.

If outages force a firm to cut production or close facilities, higher costs ensue. Banks are including that assessment when conducting due diligence on companies' accounting or contingency plans. Look for banks and Wall Street to hone in on water supply disruption risks when mulling loan applications and evaluating the outlook for public firms.

"[Public] companies provide a great deal of information about potential risks to their operations, earnings, profits, but they don't do an adequate job of disclosing the risks they face in the event of water shortages -- even short-term ones," says Marc Levinson, an economist with JPMorgan Chase. "Most companies that think about water supply risks at all are very shortsighted...they figure they can truck in water...not only is it very expensive to truck in water, but they'll be in competition with scores of hundreds of others scrounging to get water at the same time."

The risks affect companies in many parts of the nation. Water shortages loom over many firms in the Southwest, Southeast and parts of the Midwest and Northwest. Warming temperatures that reduce snowfall in the mountains will prolong periods of drought. The spring runoff from snow in California, critical to its water supply, is forecast to be 55% of normal, forcing summer water restrictions.

Use of water recycling systems and efficiency measures can offset the risk for big water users, but problems can wreak havoc in unexpected ways. For example, electricity-dependent aluminum smelters in the Northwest shut down in 2001 when drought slashed hydropower, pushing up Anheuser-Busch's production costs. There were higher power costs to businesses in the Southeast last summer after water shortages forced the Tennessee Valley Authority to power down Browns Ferry nuclear plant. Others at risk include golf courses in parched areas, the Nevada gaming industry, automakers and other manufacturers that need large quantities of water.

Water shortage risks are already an issue in emerging economies, such as in China, India and South Korea. In those nations and in the U.S., even the potential for problems related to water can influence perceptions of companies held by individual and commercial customers and investors.

Craig Hanson, deputy director of the World Resources Institute program for people and ecosystems, says: "Companies should expect they'll face a reputational risk over water usage...[and] companies that are perceived as water hogs in areas where water is becoming scarce will become targets of community groups."