Ecolab Inc. (ECL) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. My name is Steven Bullock, and I am the Global Head of ESG Product Innovation & Analytics at S&P Global. It is my pleasure to moderate and speak at today's webinar, Beyond ESG with Water Risk, part of S&P Global's Beyond ESG webinar series. You can view previous episodes in this series by accessing the link in the resources widget at the bottom of your screen. We recognize that the topic of today's webinar is of great interest to you. We want this to be as an interactive session as possible, and we encourage you to submit questions during this discussion. At the bottom of your screen, you will see a row of widget icons. These icons will allow you to interact with us throughout the session. I would like to point out the Q&A widget, which can be used to submit questions to the panelists as well as the survey widget. Please take your time to fill out our short survey after the webinar. We really value your insight. The webinar is being recorded and an on-demand version will be available shortly after we conclude. If you encounter any technical issues during the webinar, please try refreshing your browser. If issues persist, please use the Q&A widget to contact us, and a member of our technical team will assist you. So it's my pleasure to introduce our guest speakers for today's webinar. We're joined by Emilio Tenuta, Senior Vice President and Chief Sustainability Officer, at Ecolab; Katherine Kroll, Senior Institutional Sustainable Investing Specialist at Brown Advisory; and Walter Leclerc, Director of Environmental Occupational Health & Safety at Digital Realty. I'd like to start first up with a little bit of context for today's discussion. Climate change, population growth and economic development have led to growing competition for water resources. As a result, water has become increasingly scarce and costly, a trend that will continue in the years that follow with the World Resources Institute, the WRI, estimating that there will be a global freshwater deficit of 56% by 2030. S&P Global Trucost data also shows that water usage has increased more than 20% for both global and U.S. companies between 2015 and 2018, with the trend slightly improving in 2019. Disparity between supply and demand in freshwater is even worse than previously predicted, materializing in unforeseen water risks for companies and their investors and making the need for immediate action essential. However, there are currently some challenges that stand in the way. Firstly, climate action, although essential, often take center stage, which means the issues of water risk can often slip under the radar and become undervalued. As a result, corporate and investor action is often disproportionate to the magnitude of the issue. In a recent survey by GreenBiz and Ecolab, for example, only 38% of the corporate respondents indicated that they were proactively managing water across their operations and supply chain. Secondly, current water governance is not equipped to effectively manage shared water challenges at the local level. During today's webinar, we'll be hearing more from our panelists on these issues as well as the data sets and tools that are available and the practical steps that companies and investors can take to help them understand water risk and to take action. So let's get started. First up, I would like to begin this discussion by hearing from our audience for their opinion on a polling question. So just moving the slide along one here. Here's our question visible on the screen now. So we would like to know where you would parse your organization on the following water maturity curve? So firstly, untapped, you're just starting out on your water management journey; linear, you understand water-related risks and you are actively exploring water management practices; exploratory, you understand the water-related risks and you have water management practices in place; and finally, water smart, you understand water-related risks, you have water management practices in place, and you are actively engaging and working with stakeholders in water-scarce locations. So we'll just give 20 seconds or so for the audience to respond to this self-assessment of your position on the water maturity curve. Okay, 5 more seconds and then we'll see the results. Excellent. So moving through. So very, very insightful here. We can see that the majority of participants are just starting out on their water management journey. So they're falling in the untapped category. And I think really, that may reflect some of those challenges that I mentioned earlier in my context setting.

So with that then, I'd like to open up the discussion to our panelists. And Katherine, I'll come to you first. So I opened up today's discussion with some context on water risk. Now in your view, why does water mismanagement represent a financial risk for companies and their investors?

Great. Yes. Thank you for that question. And for the context you just provided. I think it's a really helpful starting place on an incredibly important issue that, that really means something to all of us as investors and as community members. As I think we know, ESG investing, environmental, social, governance investing is this massive industry now. And I can think of a few issues that are as squarely at the intersection of fundamentals and ESG as water is. When we look at water quality and water scarcity, these kind of twin issues of water risk, they play across a variety of other risk factors, which, to your question, Steven, I think, is why it's so important to get right. Think about issues like environmental justice, climate change, even the basic lubrication of much of our economic activity. And despite that, I think it's really easy to put water risk to the back of your mind in no small part because the price of water hasn't really been internalized. So I guess I would just start by saying, take a step back and look above from a high level at how mission-critical water is to almost every investable sector. We often say at Brown Advisory that we have a bias towards investments that the market can't live without. So if they were to disappear tomorrow, their customers would be in a lot of pain. And I'm coming to you from Texas, where just a few months ago, a storm wiped out access to clean drinking water and water more broadly. We devolved quickly, right? So forget peak optimization if you can't fill up a glass of clean water and take that to a larger scale just in terms of the demand of water-intensive industries and that they have on resources, and we just weren't able to function. And I think that's just a taste what's promised in our country if we don't manage water risk, and you know that's already happening around the globe. So I could now tell you firsthand that water risk shows up as a significant loss of businesses and communities, both from an operational cost of supply chain disruptions to this kind of growing threat to reputation. And as companies navigate this landscape, as we think about things like the changing climate, ESG investors are now really interested in how businesses are adapting to water-related risks. And I say ESG investors with a big asterisk because I think it's something that is material and salient to all investors. So I think most squarely, when we're understanding water risk and why it is material, it's easy to just point out the kind of obvious investment opportunity in finding a candidate that is doing a better job at managing their supply chain or are able to optimize in a way that perhaps a laggard who can't really control the resources they use compared to a more efficient peer. And I think it seems straightforward, but there are a lot of misconceptions around water risk and besides this idea that it's just the big users that need water. It's this distant problem or there's this magic bullet that will save us from water risk. I do think it's important to demystify those areas. So let me just hit on each of them quickly and then I'll turn it back to you, Steven, because I know we have some great folks on the line that can really help us connect the dots in a way that is very tangible. So the first is that water risks exist across the entire economy. It's not just the biggest users of water. You might think of food and beverage companies. But as investors, we're thinking things like data processing and health care. The CEO of Ecolab says, you can't fight a pandemic if you don't wash your hands. So beyond just the operational business, it's how are these companies managing kind of the transition risk of water. The other is this idea that water scarcity is in the distant future. But we've seen, as I mentioned, in Texas and elsewhere around the country and the world that this is a challenge that's with us right here right now. If you're a fixed income investor, you might recall or really, if you're an active citizen of the United States, you might recall the controversy in Flint, Michigan. And our fixed income team has taken that risk, that social justice risk and integrated it into their investment process to ensure that they're not allocating to investments that are not ensuring the equitable accessibility of this essential service. And then I'd say the last piece that's really important to remember as an investor is that there's no one stakeholder, no community, no company, no investor that in a silo can engineer their way out of water stress. It's a shared resource. It's a collective action problem, and it's one that we need an all hands on deck approach to from companies and investors alike. So let me pause there and hand it back to you, so we can hear from other folks.

Fantastic. Thank you, Katherine, and really interesting overview though and nice 3 key points to take away. We see there are tools out there now emerging in the market that can help companies and investors understand the risks and start to take action. And Ecolab, of course, recently launched the Smart Water Navigator. Emilio, I'd like to come to you next and ask you perhaps just to provide an overview of this tool and how it can support organizations in their smart water management journey. So over to you, Emilio.

Thanks, Steve. Thanks for having me, and it's great to be with everyone today. Let me set the stage a little bit, Steve, for the survey. And it's important to note that Ecolab is on the front line at more than 3 million customer locations. Walter is on the line today, and he'll share more about the role that we have. But around the world, we see firsthand the water challenges that industry faces and can result in significant operational risk to businesses, which is what Katherine was highlighting in her opening remarks. And that includes operational costs, supply chain disruption, growth constraints, brand damage. Clearly, there's a whole slew of things that are a growing concern for ESG investors and the companies facing these challenges. To your point about getting to some of these answers, Ecolab partnered with GreenBiz, a sustainability research firm, to conduct a state of corporate water management survey to better understand how companies can more effectively advance their water management goals and really become more resilient to the effects of water and climate risk. So a few months ago, we heard from 93 companies with $1 billion or more in annual revenue, and here are some of the key findings on this slide. We heard that 65% of respondents stated that corporate teams are responsible for setting goals for their organization. However, 95% of respondents stated that operations and facilities are responsible for achieving water targets. You get this, nearly half or 45% of respondents feel water would be better managed and targets more easily achieved if enhanced water management and measurement and resources and tools were utilized. What this really tells us is that it shows that while water goals are set at the corporate level, progress needs to happen at the facility level. And they don't have the tools and measurement and resources to get it done. And so on World Water Day last month, we launched an enhanced version of the Ecolab Smart Water Navigator, a free online public tool that guides companies on their journey towards smart water management. We had 2 objectives in developing the tool. First, it enhances a company's understanding of water risk and guides a response that's proportional to the local issue. As we heard from Katherine, that includes ensuring that water action takes place where it needs to at the local level. Number two, helping industry build trust and credibility with stakeholders to drive more effective engagement in a collective action. So collective action is essential. We know it's part of that water stewardship journey that we're all on because water is a shared resource as you heard. So the challenges and solutions must be shared as well in the base then. And so the Smart Water Navigator was really a collaboration not only using Ecolab's expertise but also collaborating with external partners like S&P Global Trucost, the World Resource Institute and other partners like Microsoft. It's as easy as adding some basic facility information into a public portal and following a 4-step process. First, identify your risks, set meaningful targets based on local conditions, implement an industry guide and track your performance over time. Those are the steps that one would take as they leverage a tool, a public tool like this to really guide their smart water journey and to really reduce their risks related to water and climate. So Steve, that's a little bit background on the Smart Water Navigator.

Fantastic. Thanks, Emilio. And I really like the way that, that 4-step process really grounds the practical next steps that organizations need to take to move through that, that water maturity curve that we mentioned right at the beginning. Walter, I'd like to come to you next, actually. Just given what we've heard from Emilio, how have Digital Realty used these types of tools to support your journey towards smart water management. In other words, how have you started turning this into practice?

Yes. Thanks, Steve. I really appreciate it. At Digital Realty, we're one of the largest data center providers in the world. And Emilio is absolutely correct. Water management is about what happens at the local level. It's not like carbon. It's really, you have to think globally, act locally, so the old adage. And we've used Ecolab's tools from the very beginning of our water journey, and I'll just take you through the 3 that we're using currently. The first off is, we did start off with the Smart Water Navigator. We used one of the original versions from Ecolab and S&P Trucost. It really sets the stage and puts together your baseline to put each of your data centers for us around the globe on the water maturity curve. So very similar to the question that we had going there. We were able to position each of our data centers around the globe, and then that Smart Water Navigator takes the next stage for you, next step for you. And you can create specific actions and recommendations to advance the data center for us, the data center or your business on your respective water stewardship journey. We're also using the Water Risk Monetizer. So just adding 2 more tools here to the toolbox that we've taken from Ecolab. This provided our risk potential about the water scarcity that Katherine was talking about, about the water quality issues that happen locally that Emilio was talking about. And then we're able to identify our risks on a global level of each of our data centers. We get a better understanding of our hydro footprint. It validated our efforts on our water projects, which I'm glad to talk about more in the Q&A if anybody is interested. And then it points us to where we can get greater operational redundancy and resiliency. And then for us at Digital Realty, our primary goal this year is really the digitalization of the water data. This is more towards the people who were talking at how they have smart water advancements at their companies. We're looking to actually calculate water use efficiency, but we're actually even taking a step further. We're developing metrics for our customers, and we're also developing a metric called, what I term the real WUE, which is your cooling water usage divided by your IT equipment energy usage. So we're using WUE and what I call the real WUE. And we're doing that through Ecolab's Water Flow Intelligence tool. It's been a great tool. We've had a corporate dashboard for the last several years, but now we're expanding that to the global data centers. So at the local level, they can have visibility, alarming and trending for their operations. So we're really turning into our global metrics, and we're using Ecolab's tool to do it. So that's kind of a short version, Steve, of the tools we're using that Ecolab and S&P Global Trucost are providing.

Thanks, Walter. It's fascinating to hear how it can go from the 4-step process, the theory that Emilio outlined and then the practical steps, how you're using these tools to take action. So Katherine, okay, back to you. Now we've heard a little bit about what corporates, what companies are doing to address some of these issues. We know, we understand water risk is a material issue. So just coming back to you from an investor perspective, how are investors considering water risk in capital allocation decisions?

I think it's such an interesting opportunity to explore both the risk and then to flip that script and focus on also the opportunity, right, to understand not just how companies are able to improve their balance sheet or save costs on managing their own resources, but also in how you can invest in companies who are water solutionists and helping their customers become more efficient and productive and drive revenue growth in the process. So I guess just to start in this question, it requires this embrace of an idea that ESG can play defense and offense, which shows up in our process. And we are looking at water as investors at Brown Advisory and especially in our sustainable strategies, but really across the board in these 2 ways. So how are companies managing their risks, which we see as the floor, not the ceiling of ESG investing, but certainly something that's important. And in every single assessment we conduct, understanding resource use and specifically water comes up. So if you're a company or an issuer and you are not managing and articulating how you're managing water risk, I would argue it's to your disadvantage because it's something investors are paying attention to at a bare minimum. Going one step further, we then, on the right side of this slide you can see, try to articulate what is the opportunity. How are companies or issuers playing offense and actually using sustainability as a way in the case of equity investors to drive alpha? And I'm going to highlight Ecolab, not just because Emilio is on the line, but it really sincerely is my go-to for folks who are newer to the ESG space, I think, just because it shows how hand-in-hand ESG management is with alpha. But I think it goes double when we talk about water. So Ecolab has been in our large-cap sustainable growth portfolio, I think, for over 10 years. And in that time, they've returned to shareholders high teens total return on a compound annual basis. And I think Ecolab is a really good example of both that defense and that offense mentality, which I think is becoming table stakes in a way for investors that are seeking to understand water risk, right? So as you now know, and Emilio, you jump in if I get anything wrong about your company, but they are providing cleaning and sanitation services for a wide variety of industries. So whether you're cooling a data center, right, going back to that idea of water hitting on a wide variety of economic activity or whether you have a laundering or dishwashing facilities, for example, when you all start traveling again, they are helping you use less water, use less energy to kind of heat and transport that water and then as a result, you're going to have higher yields throughout your entire process. So that's the opportunity, helping customers to do more with less, to save money and resources and to have a positive impact socially and saliently, while still providing a compelling growth of a company's business. So I hope that kind of puts it into perspective in terms of how investors are not just looking to make sure that companies are doing the bare minimum on water risk, but also the incredible investment opportunity that comes with water solutionists. And it might look like an Ecolab. It might look like a company that's providing a different software or service. It might just look like a company, say, in the semiconductor space that's doing a really good job managing their own resources in such a way that it creates a competitive differentiator. So the key here is for us as investors to take a wide view of how complex water is and ensure we're mapping it to our investment opportunities.

Fantastic. Thank you, Katherine. I think that goes a long way to sort of shed a little bit more light on how investors are using information on corporate water disclosure as well, and I'm sure that's something that our audience will be really interested in as well. So coming back to you, Emilio, we've heard, I guess, from a number of the speakers today how water is a local issue. We also know that collective action is important. I guess in terms of the Smart Water Navigator, how does that tool help drive action at the local level to address these shared water challenges?

Yes. Addressing water risk requires a focus on the local context, which is often overlooked with traditional corporate-wide efficiency goals. The premise being that using Katherine's example, water in the Twin Cities, Minnesota, which is where I'm located, looks very different in quality and quantity than in Central Texas, which is where Katherine is. I think it's important to note that leveraging tools like the Smart Water Navigator can help companies reduce operational and supply chain risks related to water and climate because we know that climate conditions and climate stress is also impacting water supplies. Adopting smart water management practices allows companies to use less water, as you heard from Katherine, which lowers water scarcity risk. It also saves energy and leads to greenhouse gas reductions. Not to mention, it reduces cost and boosts efficiency, which was some of the takeaways I took from Katherine's update. The bottom line is that taking a more proactive water management approach brings companies in line with the changing business, consumer, community and ESG investor expectations. For those familiar with what's going on in the electronic chip supply challenges that we've been experiencing, we know there are many factors to blame, but one of those challenges happened in Taiwan, a hub for chip manufacturing, is the historic water drought impacting the economy and the semiconductor industry. That has tremendous ripple effects across many tech and non-tech industries. So to help address these issues, one of the new features of the enhanced Smart Water Navigator this year was developing and setting a feature for meaningful local targets, how to set those targets based on local conditions. With the help of WRI's release of the baseline water stress data at the basin level, setting meaningful goals based on local conditions becomes a foundational feature of this 4-step process. Remember, it's about identifying your risk, setting meaningful targets based on local conditions, implement a industry guide and solutions that will address that issue, that shared water challenge. And then finally, tracking our performance over time. So Steve, put into practice, sites without water targets can now use the Smart Water Navigator to identify risk, monetize that risk and develop a response plan that includes, by the way, setting meaningful targets based on the local watershed and to follow the smart water guidance and resources provided within the platform. Sites that already have water targets can also use a Smart Water Navigator really to evaluate if the ambition of their water targets is sufficient to address the shared water challenges in their community and really to access the best practice guidance on how to implement and track progress towards meeting the target. So those are some ways that the enhanced Smart Water Navigator that's now publicly available can help address target setting when it comes to addressing local challenges.

Fantastic. Thanks, Emilio. And as you can see from the questions I'm asking, I'm really interested in the sort of practical steps that companies can take once they understand those risks and opportunities. And I guess just coming back to you, Walter, just on that theme. If we recall the poll at the start of the webinar, which indicated that a lot of the organizations on the call today are just starting out on that water management journey. So my question to you, Walter, would be, what's your advice for those companies who are just starting this journey towards smart water management? What practical tips and recommendations would you provide to those companies?

Yes. Thanks, Steven. I think it's a really good question. I do get it now quite a bit. And I think it's very practical for the people who responded as untapped or limited. It comes down to a very simple thing I say is you've got to have a plan. So it does roll back to what Emilio was just talking about. We call it our global water strategy at Digital Realty. And our intent was to develop an integrated water management strategy that reduces our global hydro footprint. So we were looking for the reduction in the environmental part, but we needed to ensure, right, the reliable performance and operational resiliency of our data centers. So we can't go down. So we had to move them all in unison together. And certainly, the Smart Water Navigator, as I mentioned before, was one of the pieces of the puzzle, along with the Water Risk Monetizer and now the Water Flow Intelligence tool. So it's all really good. I mean, the plan for us was it addressed the strategic role that water plays in our operations. We got to manage our water. We got to evaluate the optimization opportunities. We also developed projects out of this. We found all these water projects that we didn't know exist. So it opened our eyes to even more water conservation, resiliency and redundancy. We obviously knew about our risks now and certainly in some of these water-scarce areas. So we became more focused on our water conservation efforts in those areas. It also became a resource for our D&C team. So when we design and construct in the future as Digital Realty expands more into these water-stressed locations, we're able to be a better partner for the world, for our business, for our communities we operate in. And then eventually, our next step is really, for us, is to look at where we could become net zero. And I'm not talking just about the global top goals where an executive says, we're going to be net zero by certain. I'm talking about the real thing, where we could make those impacts on our local catch basins and the watershed projects. So we're really looking into that now. And for us, the other thing is, I would say, everybody has got to have a plan, but you also have to understand the full value of water. And this kind of goes back to what Katherine was talking about at the very beginning. Digging a little deeper, you need to understand the full value of water in your operations. And I am talking about the very simple things like your sewer and water bills, but it also goes beyond that. We're talking about your regulatory risk maybe from a Legionella perspective, those kinds of things, operational and reputational risks. And then to your local water basins, and that goes back to what Emilio was. So I'm kind of tying this all together. And again, this goes back to what I was saying, we're kind of following the old saying at Digital Realty is, think globally, act locally. And then I think the final piece to think about is, you got to have your plan, you got to understand the value of water, but there is a stakeholder, customer service piece there. So like Katherine was talking about from the investment community, we're talking about also our customers. This can be a differentiator for your company. And we found it in the data center industry. We know with our safety program, it was a big differentiator when we became America's Safest Company in 2018. We were put on that unique list in the U.S. here. The smart water management has become the same thing. So I tried to put this together for you, but you got to have a plan, you got to understand the value of the water and certainly your stakeholders and customer services, the service piece is very important, too.

Wonderful. Thank you, Walter. And I think that's incredibly useful for those members in the audience today who are just kind of thinking about this and getting started on that journey. So at this point in the webinar, I'd love to open this up now to audience Q&A. So as a reminder, you can use the Q&A widget, which is in the panel and please submit questions that you want to pose to our panelists, and I'll do my very best to chair the discussion. We may not get to every single question, but of course, we will follow-up with those that we are unable to address directly. I can see that a lot of questions have come in already as we've been talking, which is fantastic. But now is the opportunity to send these along to us. And we'll take the next 15 or 20 minutes or so just fielding those. So just reviewing the Q&A widget here, my first question actually is to Emilio. And this is a question about the financial metrics in the Smart Water Navigator. So could you just describe a little bit more about those specifically? What are those metrics and what do they mean?

Well, absolutely. And Walter had that last slide up, which I really think gets to the source of those metrics. One of the things that we did early on, Steve, as you know, working with S&P Global Trucost, is really wanting to create an internalized price on water, which is something that I know the carbon space has done a lot of work on. And internalizing carbon, a number of companies now have an internal carbon price that drives their operational and supply chain decisions. And so the same concept 6 years ago was to develop that same methodology but for water. And what we try to do is really to monetize those externalities that today aren't being accounted for in the water bill. It's things that ecosystem services, biodiversity, groundwater recharge. There's a number of factors that today aren't being accounted for in your monthly water bill that Walter highlighted as being a very narrow view of what the value that water is actually bringing to your operations as an asset, not as a liability. And so that output from the financials that you get by adding some basic information about your site or your enterprise really leads to a U.S. dollar per cubic meter of the full value of water to your business at that local level.

Fantastic. Thank you, Emilio. A question now, I quite like this question, actually to Katherine. Other than, yes, Ecolab, what other ways can investors invest in water? Maybe you could just shed a little bit more light on that?

Sure. I'm happy to. I think it goes back to those 2 camps of investment. So investing in companies or issuers that are real leaders in the management of their own footprint. I think this is especially true for companies that are in the larger cap space, right, just given anything they do will have a material impact on water quality and availability even if it's just in a signal, but perhaps even more tangibly so. So you can look at folks in the space I mentioned and I think Emilio did too. If you look at industrials or semis, really focusing on how are companies managing and measuring their water footprint and are they improving directionally. I think that's another indicator that sometimes gets put away. So I saw a question in the chat and sorry, Steven, to maybe steal one of these, but I thought it was a great one. That disclosure alone isn't enough. And of course, as investors, we encourage disclosure. But if Emilio and Ecolab were just setting these goals or sharing these statistics and not actually working towards them, that alone is not a financially material input. So it's really important to look for companies that, especially in the space of managing their own footprint, are going beyond just disclosing and actually proving on an ongoing basis that they're getting better. So I think improvers is a term that is becoming more popular within ESG investing and certainly something to keep an eye on with water management. And I'd say that long-term investors have a real advantage here given we're not in and out for the policy commitment. We're in and hopefully here to stay for the policy implementation. And so if you have a seat at the table with some of these companies, you're able to both learn from them. They're often the experts but also where appropriate nudge and say, congratulations on your 2015 policy adoption of setting this water goal. Welcome to 2021, where are we at? And encouraging that continual work because it's not something that you put in your CSR report, you put on the shelf and you forget about. It needs to be managed on an ongoing basis or forever, frankly, right, as long as the company seeks to exist. So that's one way to invest in companies, companies that are leaders in their own footprint. And then the other bucket is companies that are providing solutions that make it easier for those companies to do just that, in addition to some of the private investments that are perhaps more obviously helping to innovate towards some of these solutions, which is outside my jurisdiction, right, I focus more on the publicly traded names. But there are so many exciting opportunities to invest in. I'm sure we have a bunch of folks listening in today that are doing just that, providing the tech and the software and the service that will help us reach some of these goals. But since it can't happen in a silo, it's really important to look beyond just the tech innovators and also the companies that are doing the kind of hard work in helping create economic efficiencies in terms of water. So Microsoft has been a real leader in climate innovation. Walter, you pointed out, you can't measure water the way you can measure carbon. But if you're doing anything on climate change, you better be doing something on water, too, since they go hand-in-hand. And so Microsoft has been a real leader. I think actually has partnered with Ecolab in the past, partnered with a lot of companies to help reach some of their water goals. So I'd say the other investable opportunity on the offense side is looking for companies that are equipped to partner and collaborate to help that first bucket reach their goals. Hopefully, that answers your question, but feel free to push back.

No, that's fantastic. And I'm glad that you touched on the disclosure versus action question as well. That was framed as a provocative question. Actually, again, I like that question. I think emphasizing the point that often disclosure is the starting point. It's the start of the journey, and it's the actions that are important alongside those as well. There's a question here about disclosure frameworks, though. And I guess maybe I'll come to Walter here on this one and maybe to Emilio as well. Are there specific disclosure frameworks that you're following right now? Which ones are important to your organization? Maybe I'll start with Walter and then quickly over to Emilio as well.

We are, but I think it's better to let Emilio handle this from a corporate level. So I'm going to pass the buck.

No problem. And Emilio, I'm sure we've spoken about this a number of times. So yes, over to you.

Sure. So I would say that one of the ones that I think that you must start with because it's foundational is CDP. And CDP from a, not only a climate, of course, and forestry. But water security, which has been available since 2010, is a great place to start and really identify not only the disclosure of how it impacts your operations, but also your supply chain. And I think it's an important aspect of the toolkit that a company needs as they start to disclose the risk factors as well as their inventories on water use. But also, the other part of the story is not interested in disclosure, that's just the beginning part. It's also about what Walter talked about, which is performance, is being able to perform year-over-year toward a common target that you have related to how you want to reduce your risk. Obviously, the investors of Katherine are the biggest audience for that data from CDP. And so that gives everyone a common framework to work off of to really address some of these water and climate-related risks.

Fantastic. Thank you, Emilio. And I guess just talking about the sort of the, thinking about the practical steps. You're a company. You've understood your water risk exposure. You want to identify and invest in projects that are focused on reducing that risk, whether that's water efficiency or whatever it might be. Return on investment is still going to be a consideration for the finance teams within organizations. And I guess to you, Walter, what's your experience on that? How has that sort of dialogue changed over the past few years in the context of water risk?

Yes. So the water risk as an industry just generally has changed quite a bit. And I think a lot of companies will find a more positive atmosphere. I mean, we used to see return on investments of 10, 20 years on water projects in the old days, if anybody -- I know I'm aging myself here. But in the old times, I mean, it was terrible return on investments. We're finding now with reclaimed water, with the business climate, we're seeing incredible returns on investments even down to 9 months on projects. And if I can feed into one of the questions that's in the pipeline about where Digital Realty operates in water risk areas. The one I'm comfortable talking about is in the San Francisco Bay Area, where I'm located. So if people are familiar, Santa Clara County is a, it's got a water scarcity problem already. And how do we work to make a positive impact on our community here. We found those projects, Steven, have been incredible. I've got a few going on right around me at the data centers right here in Santa Clara County. The return on investments are anywhere from 9 months to 2 years. So the CFOs love it. We're working with our local municipalities to promote the reclaimed water, and then we're looking at watershed projects here. So I kind of fit 2 questions in there at once to address it. But no, the return on investment, the climate has changed quite a bit, pardon the pun.

And Steve, can I just add to that?

Of course, yes, feel free.

Walter did a great job of describing the earlier question, which is also about the output of the Smart Water Navigator from a water risk monetize perspective, which is for many companies, it becomes a challenge in at-risk watersheds in many ways to really address the challenge unless it's acute. And I think monetizing and embedding risk into their decisions to take action and the investments that they have to take, it becomes easier when you have a tool that can help you understand what those externalities are. And this, I think to Walter's point, is where the Water Risk Monetizer allows companies to really use that approach and really embed the risk and get an output that can allow them to look at investments that have a more favorable internal rate of return based on that discounted rate versus a conventional monthly water bill that you might be using to make your business case.

Absolutely. No, thank you. And I think it comes back to this question about the value of water, the value that we place on water. And there's a question here as well around whether we would say that water is generally under, over or adequately priced today and how that affects water use efficiency and quality. So I might just come back to you again, Emilio, on that comment because I know that's one of the principles behind some of the tools that Ecolab and indeed, S&P Global Trucost have been working together on over the past couple of years. So what's your view on that? And I might ask Katherine the same question as well.

Yes. So real quickly, I think, without a doubt, even with the challenges that we're seeing around water around the world, where water prices are starting to creep up, albeit not fast enough and not high enough, the point is that water is still very undervalued. And no matter where you operate, I could share examples where places like Mumbai, India, where water might be, the water in might be less than $0.34 per cubic meter. I mean, it's that inexpensive in a high-risk area. Of course, the challenges as well is that we see an inverse relationship between water availability and what users pay for that water in that local area. So I take Chicago, which is where I'm from. Chicago, water prices are somewhere in that $2 per cubic meter. Now we're sitting at what is 20% of the freshwater resources, Chicago being on the rim of Lake Michigan. And then you compare that to the Mumbai scenario, where water prices are $0.34 per cubic meter, and it's high risk. So there are those challenges that we are facing, and we need to rethink the way we value water, to Walter's point, so that we can make those investments to really drive water resilience.

Fantastic. And Katherine, anything to add on that from a then sort of investor perspective?

It's shockingly undervalued, I think, and almost disturbingly so. But I think what exists within that undervalue is for better or worse, a real opportunity for investors to find investments that take it into consideration. And it will become, if it isn't already, where we can name a few companies that are already seeing a lot of advantages from having internalized it, but it will become a real competitive distinguisher, I think, among peers who aren't looking at water as something to internalize. I think it's not for nothing that in some of the places with the, as Emilio said, with the least access to water, it's also some of the places in the U.S. where it's cheapest to get it. I think about states like Arizona and drought-prone states in the United States. And it's a real challenge. So companies that will be able to act on that ahead, hopefully, of disaster are able to provide, like I said, that mission-critical service that is one of the key metrics we look at when making an investment. And I'm always mindful of keeping it on the financial case because I think for some reason, the salient nature of water risk, the fact that it is just such a foundation of human life, it can turn investors away from it, I think, sometimes to kind of discount it as this fringe issue, but we can link the availability of clean water to most of the improvements in life span, in life quality around the world. So being able to invest in preserving that, that is both an emotional issue, sure, but it's a financial one, too. And so I think it's important to be a first mover on that issue if you want to reap the investment benefits.

Fantastic. Thank you, Katherine. And I saw a couple of questions on this point, and I thought I might just pick up this one myself. And it was a question around the importance of asset-level information and the fact that given that water is such a local issue that we need to go beyond just looking at this from a corporate, aggregate corporate perspective and consider asset-level information. And I think at S&P Global, for example, we recognize this issue, not just in water, but other issues as well related to things like biodiversity and nature and really the dependency that companies have on these types of inputs at the moment, it's a very local issue. And obviously, encouraging to see that more and more companies are disclosing information at the asset level, at the underlying asset level. But I think there's other data sets out there, whether that's satellite information and other alternative data sets that can help shed a light on some of these issues as well. And I think a really important point there in some of the questions about how you kind of reconcile the sort of the overall corporate performance, but the asset-level information as well that is critical to understanding these types of issues. So just mindful of time, that's all we have time for now in terms of audience Q&A. And I want to thank everybody for submitting their questions. I think that was very, lots of questions coming in, a very interactive session. So thank you all for participating. Before we do close, though, I'd like to just come back to our panelists one more time for their final sort of one sentence takeaway billboard comment that they'd like to leave our audience with today. So Katherine, what would be your one sentence summary?

Yes. One sentence is tough, but I guess it has to be that water is the bedrock of almost every ESG issue, food scarcity, climate change, social justice, economic mobility, and it's material for investors today, not just in 3, 5, 10 years.

Thank you. And Emilio, what's your billboard comment?

And I'll continue Katherine's point by saying, and we can close the execution gap by leveraging tools like the Ecolab Smart Water Navigator and become more resilient to climate and water issues around the world.

And Walter?

First, just thanks for having me, and I'm always glad to share what we're doing at Digital Realty as far as our water journey. I would just say, we're in our early stages at Digital Realty, our fourth year, and we're already seeing game-changing potential and innovations and reductions and reuse or recycling of water. I just encourage everybody, if you don't have a plan, make a plan, make a water strategy. I guarantee you will find cost savings and operational efficiencies that you didn't know about. And in the end, you'll be doing the right thing.

Wonderful. Thank you, everyone. So in closing, I just want to recognize the fact that we covered a lot today, lots of interesting discussion here and some really important points relating to water risk and how to take action. If you do have any follow-up questions, then please use the contact us widget and we'll be glad to assist. For those of you who want to review anything we've covered, this session has been recorded, and you will receive a copy shortly after the webinar concludes so that you can access it on demand at your own convenience. So I know that a few of you have asked about whether the slides will be available. And they, of course, will be. When we close out the webinar, you're going to be routed to our webinar survey form. As I mentioned at the very beginning, we'd love to get your feedback. So if you wouldn't mind taking a few moments to fill that out, that will be great. We would also like to invite you to join us at our inaugural ESG conference titled Accelerating the Transition to Sustainability. It's a 3-day virtual event of thought leadership and interactive discussion. A link to them all as well as how to register can be found in the resources widget as well. So all that's left for me to say is a huge thank you to our panelists. To Emilio, Katherine, Walter, thank you so much for your time and your insights today, very much appreciated. And thanks to everybody who joined in the audience and all of the questions that you submitted as well. Hopefully, you found that a useful discussion and also recognizing that we're unable to cover everything. But thank you so much and we look forward to you joining us again in this webinar series. So thank you very much.

Thanks so much.

Thank you.