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Water at the Heart of the Global Resource Nexus

The issue of corporate water stewardship has been steadily gaining traction among business leaders. This is not surprising given the current state of the world’s water supply. 748 million people on the planet draw drinking water from unsafe sources. Businesses that have components in their products or supply chains that are reliant on clean water face possible depletion of readily accessible water as a resource. Experts are calling it a global crisis, and it will get worse until practical solutions are identified. The urgency of the situation is echoed in the recently released 2014 United Nations World Water Development Report where the global water demand is projected to increase by 55% by the year 2050, due to the collective demands of manufacturing companies, thermal electricity generation, and domestic consumer use.

Rising global population and economic growth in emerging markets are expected to trigger increased demand for potable water. The gap between freshwater availability and water demand in developing economies will be strained over the next few decades. The 2014 UN World Water Development Report projects that more than 40% of the global population will live in severe water stress areas by 2050.

Ceres , a non-profit organization for sustainability leadership, reports that water risks due to aspects of climate change such as ocean acidification and droughts are becoming more and more severe. The former negatively affects those that are in the fishing industry, while the latter affects most, if not all, industries. It is therefore undeniable that water remains at the heart of the global resource nexus. The water risks brought about by climate change trigger events such as poverty, high rates of disease and death, and degraded ecosystems, which also puts pressure on all aspects of social and economic development worldwide. Given food, energy, health, and the environment are all dependent on water, political and economic decisions need to take water resource management into account to ensure water quantity and quality for all stakeholders.

A water scarcity report by Lloyd’s, a global insurance company, shows that all goods and commodities have water embedded in their manufacturing process. Furthermore, all countries and organizations, whether deliberately or unintentionally, are involved in the import and export of virtual water due to trade globalization. Since global water demand is increasing and the earth’s capacity to supply it is becoming more and more uncertain, every country, institution and business has an active responsibility to curb the global impact associated with water scarcity and pollution.

The Water Dilemma: Organizational Risks Related to Water Scarcity

Companies are operating in a world where they struggle to find the adequate water supply needed to run their business. Understanding the uncertainty of water supply is the first challenge that organizations need to consider in order to evaluate their own exposure to water-related risks. Lloyd’s water scarcity report identifies several water-related risks for businesses:

  • Physical Risks

    Physical risks directly involve the shortage of water and non-potable water worldwide. This kind of risk is worsened in cases where water management institutions are unable or reluctant to exercise control over water use and wastewater discharge of rivers, dams, or other aquifers. In addition, secondary physical risks are associated with the lack of capability of many countries to physically deliver water supply and wastewater disposal services through their own infrastructure systems.

  • Regulatory Risks

    Regulatory risks are associated with the restrictions on water use by the government. It also includes the pricing of water supply and wastewater discharge. Regulation and pricing may be the key elements of sensible water management. In most cases, they can also be part of disordered or contradictory government policies on water. Government regulations change, and an organization's water license may be revoked in response to physical or political crises. Water regulations increase whenever there are failures in water management policy or if water supplies are neglected.

  • Community and Reputational Risks

    Community and reputational risks are manifested through the conflicts around water access and local water degradation. In most cases, conflicts that may arise create an unsteady social, political, or regulatory environment. This is not conducive for stable business operations because it may result in employee or supply chain disruption. Under unstable conditions, companies have a tendency to be blamed by local stakeholders even if their businesses are not directly responsible for local, social, or ecological problems. In worst cases, local violence may erupt between different water users. In a globalized economy, public perceptions can rapidly change when organizations are seen to impact aquatic ecosystems or water use of local communities. These perceptions may cause reputational damage if an organization's supply chain is linked to social or ecological deterioration, whether or not the cause is strongly established.

  • Geophysical Risks

    Geophysical risks involve the potential conflict over transboundary water basins or trade restrictions on commodities embedded with water. Although this risk is not especially prevalent, it may be rampant in the future due to the changing climate-driven economy. Organizations are threatened by regional, political, and trade disputes, which have the potential to disrupt water sharing, energy pools, and food trade among countries that share large rivers. The geopolitical consequences of water scarcity are more likely to increase in the next few years as water resources become scarcer.

  • Investment Risks

    Investment risks are associated with the possibility that water-related disclosure requirements will be placed on investors and retailers. As the threat of water-related risks become prevalent in the coming years, investment risks will most likely coincide with the establishment of formal water stewardship standards and disclosure metrics surrounding an organization’s water use.

Strategies and Opportunities for Water Risk Management

Corporate water risk management strategies only gained traction among stakeholder groups such as investors, corporations, and policy makers in the last decade. CDP , the world's largest publisher of corporate climate change, water, and forest-risk information, defines companies with a robust water risk management strategy as those that have a comprehensive knowledge of water use across their value chain and understand the impact that water-related issues have on their business.

Water issues are often considered in a company's annual corporate social responsibility report. Lloyd’s water scarcity report mentions that most organizations frequently manage water risks in their operations as they lobby for public water policy, laws, and regulatory changes. As different companies try out different water risk management strategies, their corporate initiatives share a number of common components.

First, companies need to understand the nature of their own water-related risks. A report by Ernst & Young, a multinational professional services firm, shows that companies need to learn how to start navigating around the risks related to water to understand the impact it has on their operations, products, and services. Once organizations understand the water-related risks of their businesses, they can then take action to improve their supply chain operations.

The next step for organizations is to create an appropriate corporate water risk management strategy that best suits their business. After understanding and quantifying the nature of an organization's water-related risk, Lloyd's water scarcity report states that it needs to be followed by appropriate policy and strategic operational responses to manage the water-related risks in their business operations.

Lastly, businesses should participate in collective action in supporting water governance and public policy. According to the World Wildlife Fund’s water stewardship report , promoting public interest in water issues creates greater political support for progressive water legislation. An organization's efforts to influence public policies will help reduce future water-related risks and issues brought about by the changing climate.

Water Risk Management Tools and Initiatives for Organizations

Water risk disclosure initiatives have been steadily emerging as organizational stakeholders such as investors, consumers, and policy makers become increasingly aware of various water risks and their consequences. These initiatives serve as platforms that allow organizations to share practices and common approaches in partnering with governments and international non-government organizations in the fight against global water scarcity. An Ernst & Young report summarizes the most prominent tools and initiatives that organizations use today.

Here are several water-related tools and initiatives that are used by organizations worldwide:

  • The CEO Water Mandate

    The CEO Water Mandate is a collaborative partnership and knowledge sharing initiative created by the United Nations Global Compact in 2007 to support the disclosure of water sustainability policies and practices by private companies worldwide. The initiative aims to establish an international committee of companies from all sectors whose CEOs are willing to endorse the global water initiative.

  • WBCSD Global Water Tool

    The World Business Council on Sustainable Development ( WBCSD ) provides the Global Water Tool to help visualize, analyze, and prioritize water risks for companies. The Global Water Tool runs on Microsoft Office Excel and is available for free. The tool can generate online maps that combine information related to the organization’s installations with external datasets. The WBCSD also has a Water Task Team that hosts a forum for companies to engage in water-related issues and assist in developing other tools to support corporate water risk assessment.

  • Ceres Aqua Gauge

    The Ceres Aqua Gauge is a framework and management tool that is used for assessing corporate water risk management. The Aqua Gauge is established from the Ceres Roadmap for Sustainability, and it is designed to enable investors and companies to have a better understanding of water-related risks and the most effective water strategies and practices used to manage them.

  • Veolia Water Impact Index

    Veolia Water developed a Water Impact Index that uses a volume-based water measurement tool to provide a detailed and holistic set of parameters for effective water management. The Veolia Water Impact Index has measurement tools that factor in the amount of water volume, water stress, and water quality of an organization. The tool also helps cities and companies plan sustainable, long-term projects in order to ensure long-term water supplies and healthy water ecosystems.

    • CDP Water Disclosure Project

CDP’s Water Disclosure Project helps businesses report their water use and exposure to water-related risks. It is a tool for investors and businesses in evaluating their ability to successfully operate in a water-constrained world. The Water Disclosure Project also helps institutional investors better understand the business risks and opportunities associated with water scarcity and other water-related issues.

FirstCarbon Solutions’ Water Management Solutions

As CDP’s Gold Consultancy Partner, Silver Software Partner, and Global Scoring & Sustainability BPO Partner, FirstCarbon Solutions works with companies on the impact of water use on operations. Its highly scalable, customizable, and robust software-as-a-service (SaaS) tool, Sustainability Workbench, includes a water dashboard that helps companies keep track of their corporate data on water consumption, water quality, and water sampling. In addition, FirstCarbon Solutions explains how water risk management helps organizations build competitive advantage and resilience by utilizing viable platforms to manage their water-related impacts.

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