Only 1% of major companies report recycled water use. A new index aims to change that

Carbon gets measured precisely. Water gets a paragraph.

Corporate sustainability reporting has matured considerably over the past decade. Greenhouse gas emissions from major companies are tracked, disclosed, compared across sectors, and increasingly linked to regulatory requirements and investor decisions. The methodology is imperfect, but the principle - that carbon emissions can be measured, reported in comparable units, and used to hold companies accountable - is well-established.

Water is different. Analysis of the London Stock Exchange Group database by a research team from Korea University and Stanford University found that while 14% of major companies reported greenhouse gas emissions, only 9% disclosed total water withdrawals, and just 1% reported recycled water use. For a resource that is fundamental to manufacturing, food production, energy generation, and human health, corporate accountability is remarkably thin.

The team - led by Prof. William Mitch of Stanford and Prof. Yong Sik Ok of Korea University, in collaboration with Prof. Jay Hyuk Rhee of the Korea University Business School and the International ESG Association - has published a response in Nature Water: the Water Sustainability Index (WSI), a transparent, quantitative framework designed to make corporate water accountability comparable, scalable, and resistant to the vague narrative disclosures that currently characterize ESG water reporting.

Why carbon metrics do not translate to water

Carbon accounting works partly because carbon dioxide has the same climate impact regardless of where it is emitted. A tonne of CO2 from a factory in Germany has the same warming effect as a tonne from a factory in Brazil. This global fungibility allows emissions to be aggregated, compared, and regulated through frameworks like the Paris Agreement.

Water is, as Prof. Ok put it, "intensely local." A million gallons withdrawn from a water-rich region in the Pacific Northwest carries fundamentally different ecological and social implications than a million gallons withdrawn from an aquifer in a drought-stressed basin in Central Asia. Existing ESG metrics often fail to capture this distinction, treating water volume as a comparable unit across vastly different hydrogeological contexts.

The result is that a company operating in a water-scarce region can appear to have better water management than one using larger volumes in a water-abundant area, simply because absolute withdrawal numbers favor the scarce-region company without accounting for the stress that withdrawal places on local water resources. This creates systematic opportunities for misleading disclosures without any deliberate intent to deceive.

How the WSI works

The Water Sustainability Index calculates a score based on five components: the source water type (surface water versus groundwater carries different implications for replenishment and ecological impact), watershed-level water stress (a measure of how much of available water is already being used in the basin), wastewater discharge quality, total water consumption, and the extent of water reuse or recycling.

The weighting by watershed-level water stress is the feature that most distinguishes the WSI from simpler volume-based metrics. A company operating in a high-stress basin receives a higher impact score for the same withdrawal volume than one operating in a water-abundant basin. This makes the metric sensitive to the actual ecological context of water use rather than treating all water as equivalent.

The WSI also incorporates water reuse as a positive factor - rewarding companies that treat and recycle water rather than discharging it after single use. Given that just 1% of companies currently report recycled water use, there is substantial room for improvement that the metric is designed to incentivize.

The transparency gap and greenwashing

The WSI paper is partly a diagnosis of how current ESG water reporting enables what the authors describe as unintentional greenwashing. Without standardized metrics, companies report what they choose in formats they select. Different reporting frameworks use incompatible methodologies. Investors and regulators trying to compare companies' water management cannot make meaningful comparisons because the underlying data are not commensurable.

The consequence is a market failure in ESG water accountability: companies face little pressure to improve their water management because the improvement cannot be credibly measured or communicated. The WSI is designed to address this by providing a formula that any company can apply to its own data and that any stakeholder can use to compare companies' water sustainability performance.

The framework is explicitly aligned with UN Sustainable Development Goal 6 - ensuring availability and sustainable management of water and sanitation for all - which provides a broader context for corporate water accountability that connects business practices to global development objectives.

What would meaningful adoption look like

For the WSI to achieve its purpose, it needs uptake from reporting standards bodies, regulatory frameworks, and the investor community that uses ESG data to make capital allocation decisions. The researchers have positioned it as a tool for these audiences rather than simply an academic contribution, publishing in Nature Water to reach a broad scientific audience while designing the metric for practical implementation.

Voluntary adoption of any new metric faces the collective action problem that a metric only becomes useful when many companies adopt it. The researchers' engagement with the International ESG Association represents one mechanism for building that adoption through an existing institutional network. Regulatory mandates - like those emerging from the European Union's Corporate Sustainability Reporting Directive - could accelerate adoption significantly if water disclosure requirements are added to existing frameworks.