A peer-reviewed study published in the Journal of Management and Sustainability, drawing on interviews with Chief Investment Officers and senior investment professionals across Australia, South Africa, the UK, and the United States, arrived at a conclusion that most corporate sustainability teams would find unsettling. The research found that investors generally regard corporate water risk disclosure as unfit for purpose — and then explained why investors tolerate it anyway. The answer involves what the researchers call a predictability discount: investors assume companies are more aware of their water risk than their disclosure implies. They price in a competence gap they cannot actually see. That assumption is becoming harder to sustain as physical water stress accelerates and regulators begin requiring disclosure that can withstand scrutiny.
The financial exposure is not abstract. Companies reporting through CDP identified $339 billion in potential financial impacts linked to water-related risks in 2024, with CDP noting those impacts could be mitigated with $58.7 billion in expenditures — a six-to-one return on investment that most organizations have not captured, partly because they have not measured the risk precisely enough to act on it. UN data shows that by 2030, global demand for freshwater is expected to outstrip supply by 40%.
Industries including textiles, electronics, food processing, and semiconductor manufacturing can face water dependencies that are more immediate operational risks than their reported emissions profiles suggest, yet their water disclosure typically receives a fraction of the investor attention that carbon reporting does. The measurement gap is a large part of the reason.
What Corporate Water Disclosure Actually Contains — and What It Leaves Out
Water risk disclosure in most corporate sustainability reports covers total water withdrawal, water consumption, and a description of water-related targets. What it rarely contains is the location-specific data that would allow an investor or regulator to assess whether the risk is material. A company can report that it withdrew 500 million gallons of water last year without disclosing that 80% of that withdrawal came from a single facility in a river basin currently classified as highly water-stressed. The aggregate figure satisfies most reporting framework requirements. It provides almost no information about whether the company is exposed to a near-term operational disruption.
The OECD's October 2025 analysis on water-related risks in financial stability frameworks identified this problem explicitly: many institutions remain unaware of the significant water-related risks they face, particularly indirect risks within supply chains, because basic heatmaps and conventional risk assessments fail to capture the dependencies that run through entire value chains. Transparency is specifically lacking in how companies quantify and disclose their exposure to water-related risks — a finding that applies to corporate issuers and the financial institutions that hold them.
The Regulatory Pressure Building Behind Water Disclosure
The Taskforce on Nature-related Financial Disclosures (TNFD) framework, which an increasing number of companies are voluntarily adopting ahead of anticipated mandates, includes sector-specific water risk disclosure guidance that goes substantially further than most current corporate practice. TNFD's approach requires location-specific assessment of water risk, accounting for proximity to stressed basins, dependency on freshwater for operations, and impact on local water quality. That level of granularity is not what most corporate environmental data systems were designed to produce.
The OECD analysis notes that regulatory pressure is increasing, and future ISSB work and increasing alignment with TNFD and CSRD-style disclosure expectations could push water-related reporting toward more location-specific data requirements over time. For EHS and sustainability leaders, that trajectory means the current reporting standard is a floor, not a ceiling. Companies that have built their water disclosure programs around aggregate withdrawal metrics will need to rebuild them around basin-level risk assessment before the next regulatory cycle closes. The data collection infrastructure that requires is not built in a reporting cycle — it is built over years, which is why the preparation window that looks comfortable from the outside is considerably shorter in practice.
Where Industrial Companies Are Most Exposed
Manufacturing, mining, food and beverage production, and semiconductor fabrication carry the most concentrated water risk exposure because their operations are geographically fixed and their water dependency is high. A chip fabrication plant cannot be relocated away from a water-stressed basin in the course of a single year. A food processing facility that sources from a drought-affected agricultural region has Scope 3 water risk that sits upstream of anything it directly controls. These companies are also the ones most likely to face near-term regulatory disclosure requirements under frameworks that will, for the first time, require location-specific water data rather than aggregate totals.
The gap between what those companies currently disclose and what basin-level risk assessment requires is wide enough that the transition will surface material new information — about the company's actual exposure, about the adequacy of its mitigation strategies, and about whether its water-related targets are connected to the basins where its real risk lives. Investors who have been relying on the predictability discount are about to get better data. Some of what that data reveals will change their view of companies they thought they understood.
