Water: a precious asset www.pwc.com/water Water: a precious asset São Paulo´s water challenge June 2015

1 2 5 Agenda Why is water increasingly important? What is the problem in São Paulo? 2 5

Why is water increasingly important? 1

Water is the number one concern for CEOs WEF, Global Risks 2015 Water crises wasn’t even in the top 10 five years ago

Global CEOs are increasingly concerned about long-term issues that affect ability to operate Failure of climate-change adaptation Weapons of mass destruction Economic risks 2015 Energy price shock Interstate conflict Fiscal crisis Geopolitical risks 2015 Unemployment and underemployment 5.0 Natural capital risks 2009 Terrorist attacks Asset bubble Natural capital risks 2015 Failure of financial mechanism or institution Societal risks 2015 Failure of national governance 4.5 Unmanageable inflation State collapse or crisis Climate change Deflation Failure of critical infrastructure Impact  Extreme weather events Man-made environmental catastrophes This slide is animated – watch how water moves up both in terms of impact and likelihood. Source: Malcolm’s blog, https://pwc-spark.com/docs/DOC-398414?sr=stream Graph: WEF The Global Risks 2015 report Putting these risks in a business context: When we talk about license to operate, we focus on a broad set of obstacles that can prevent a company from working. Those issues can be social (e.g., community protests), environmental (weather damage, lack of water,) or regulatory (laws or governments won’t allow a company to start or complete work) We have seen a big shift among CEOs across industries in the last 5-7 years about the importance they place on license to operate issues. In 2009, many of these issues particularly environmental and social ones like water, weather, biodiversity, and natural disasters were on the radar of CEOs but were not the top priorities. (advance the slide please) Over time, these issues are taking on more significance. In 2014, this survey actually added a new category of man-made environmental This year, as you can see, these kinds of license to operate issues have increased markedly in the minds of global CEOs, both in terms of likelihood and in terms of impact. Water crises 4.0 Natural catastrophes Biodiversity loss and ecosystem collapse 3.5 4.0 5.0 5.5 Likelihood  Note: Man-made environmental catastrophes was added in 2014 Source: World Economic Forum Global Risks Report (2009 – 2015)

The water challenge: Limited supply, increasing demand Global water resources Water usage and population since 1900 Water usage per year has increased from about 500 cubic kilometers in 1900 to about 3,830 cubic kilometers in 2000 Population has increased from 1.6 billion in 1900 to 6 billion in 2000 Source: UNEP Vital Water Graphics 2008. Source: IWMI 2007; World Bank 2007. What we have: Limited supply of a resource that is un-substitutable. What we need: Increasing amount of water for increasing number of people.

Soon supply will not meet demand 35% more food 50% energy 40% water Soon supply will not meet demand Agricultural water consumption is expected to increase 19% (Source: UN Water stats) Water, energy and food are inextricably linked. Water is an input for producing agricultural goods in the fields and along the entire agro-food supply chain. Energy is required to produce and distribute water and food: to pump water from groundwater or surface water sources, to power tractors and irrigation machinery, and to process and transport agricultural goods.  Agriculture is currently the largest user of water at the global level, accounting for 70% of total withdrawal. The food production and supply chain accounts for about 30% of total global energy consumption.  There are many synergies and trade-offs between water and energy use and food production. Using water to irrigate crops might promote food production but it can also reduce river flows and hydropower potential. Growing bioenergy crops under irrigated agriculture can increase overall water withdrawals and jeopardize food security. Converting surface irrigation into high efficiency pressurized irrigation may save water but may also result in higher energy use. Recognizing these synergies and balancing these trade-offs is central to jointly ensuring water, energy and food security.  http://www.unwater.org/topics/water-food-and-energy-nexus/en/ By 2035, global energy consumption will increase 35% … increasing water consumption by 85% Agricultural water consumption is expected to increase 19%

The water challenge: Too little, too much, too dirty Water scarcity and drought Floods and extreme weather events Spills and impaired water quality Too little Too much Too dirty

Climate change and resources scarcity

With development there is an increase in water consumption

2.7 billion people experience severe water scarcity at least one month a year 95% of pathogens and germs eradicated when the backpack liner is placed in the sun for 60-90 minutes SODIS (solar disinfectant method) of liner nearly as effective as chlorination Too little: The map shows the number of months per year that a given river basin experiences water scarcity. It is produced by the Water Footprint Network, which claims that anytime water scarcity is 100% or greater, the water consumed by humans starts to encroach upon the water needed to meet local ecological needs. According to this data, approximately 2.7 billion people experience severe water scarcity for at least one month per year. Note: Severe water scarcity is defined as anything above 200%. Note: The WFN methodology compares demand to supply. For demand, WFN calculates human water consumption rather than withdrawal. For supply, WFN takes environmental flows into account by saying that at least 20% of any system’s actual runoff is needed for ecological purposes. The WFN approach is widely considered one of the best because it looks at basin-level data and breaks it down to monthly increments. Source: WFN, Global Monthly Water Scarcity: Blue Water Footprints versus Blue Water Availability, 2012. Projections: The UN Food and Agricultural Organization (FAO) estimates that two-thirds of the world’s population could be living in water-stressed areas by 2025. Source: FAO 2011, http://www.fao.org/newsroom/en/focus/2007/1000521/index.html Climate change will drive more than one third of all US counties (in the lower 48) into levels of high or extremely high risk of water shortages by 2050. Source: NRDC 2010, http://www.nrdc.org/globalwarming/watersustainability/files/WaterRisk.pdf Source: Water Footprint Network, 2012 When water impacts the bottom line • New guidelines to manage and disclose corporate water risk 4

Too much Estimated damage ($US billion) caused by reported natural disasters 1900-2011 Proportion of average annual damages caused by reported natural disasters, 2011 Honshu Tsunami Hurricane Katrina Kobe earthquake Wenchuan earthquake Source: CRED, EM-DAT International Disaster Database, 2012 Source: CRED, EM-DAT International Disaster Database, 2012 Floods and storms cause the majority of economic damage from disasters.

Relative threat from organic loading Too dirty One in six people does not have access to clean water Relative threat from organic loading Source: WWF-DEG Water Risk Filter 2012 Nutrient enrichment is the most widespread water quality problem.

Water will become the focus for future infrastructure projects

What is the problem in Sao Paulo? 2

Overview of water distribution in Sao Paulo

Overview of water distribution in Sao Paulo – current situation Water distribution System Stored Volume (May 19, 2015) Water Production (m³/s) Population served Population served (%) Cantareira 19,70% 33,00 6.500.000,00 34% Alto Tietê 23,20% 15,00 4.500.000,00 24% Guarapiranga 82,40% 4.900.000,00 26% Alto Cotia 68,60% 1,20 410.000,00 2% Rio Grande 96,30% 5,00 1.200.000,00 6% Rio Claro 56,20% 4,00 1.500.000,00 8% Source: http://www2.sabesp.com.br/mananciais/DivulgacaoSiteSabesp.aspx

Overview of water distribution in Sao Paulo –situation of reservoirs in May 19th, 2015

Overview of water distribution in Sao Paulo – current situation Source: http://www2.sabesp.com.br/mananciais

Why did the water become an issue for Sao Paulo? Insufficient analysis of the hydrological regime of the region: The Cantareira System studies started during 1960’s decade. In that time, there was no pluviometric station in the region with long historical rainfall series register. There were only five station, with registers for a short period of time – only one of them had data for more than 30 years. The studies have not taken into consideration the cyclical effects that occur in long periods of time. Source: http://revistadae.com.br/downloads/edicoes/Revista-DAE-198.pdf

Why did the water become an issue for Sao Paulo? The precipitation varies around its historical average: we can have extreme floods during an year and face a drought period on the sequent year. Source: http://www2.sabesp.com.br/mananciais

Why did the water become an issue for Sao Paulo? 2. Amazon deforestation and the Flying Rivers effect: The Amazon forest attracts the humidity of the ocean to the continent. This humidity falls as rain over the forest. Through the evapotranspiration of the trees, the forest sends the water back to the atmosphere as steam. This steam flows to the West, South and Southeast, where the rain falls. This steam is called Flying Rivers. When the deforestation occurs, the forest evapotranspiration capacity decreases and the rain does not arrive to the Brazilian farthest regions. Source: http://planetasustentavel.abril.com.br/imagem/superinteressante-o- brasil-secou-infografico-rios-voadores-560.jpg Source: http://planetasustentavel.abril.com.br/imagem/superinteressante-o-brasil-secou-infografico-nossa-agua-vem-da- amazonia-rbg-560.jpg

Why did the water become an issue for Sao Paulo? 3. Increase in demand and large water losses: Great Sao Paulo Region population in 1960: 9 million people Around 25% of the water is lost during distribution Great Sao Paulo Region population in 2014: 21 million people

What has already being done? Use of the water stored in the system’s technical reserve The technical reserve is a reservoir of 400 million of cubic meters located under the floodgates of Cantareira System dams. The water of the technical reserve was pumped to the upper levels of the reservoir, increasing the level of the system in more than 20%. Source: http://www.climatempo.com.br/destaques/wp-content/uploads/2014/05/INFO_CANTAREIRA_OK.jpg

What has already being done? Discount Discounts of 30% over the invoice value are being applied for those who save 20% or more of water Use of other systems The Rio Grande and Guarapiranga systems are supplying more than 3 million people that were supplied by Cantareira system. Public awareness campaigns Public awareness campaigns showing the importance of saving water started to be transmitted in the media. Source: http://sabesp.com.br

For further information please contact: Carlos Rossin Carlos.rossin@br.pwc.com http://www.pwc.com.br/pt/sustentabilidade/index.jhtml Gustavo Melo Gustavo.Melo@greif.com www.greif.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 150313-105450-MC-OS