Unlike many other sustainability and corporate social responsibility issues, water-related business risks are highly local in nature. For example, a certain amount of carbon emissions will have a nearly identical impact on climate change regardless of where on Earth they are emitted. In contrast, a certain amount of water used in an area where water supplies are scarce will have significantly more impact on the environment and communities than the same amount in an area where water supplies are plentiful.
The extent to which companies negatively affect ecosystems or communities or are otherwise exposed to risk is highly dependent on inter-related watershed conditions over which companies may have little or no control. These conditions include:
- Hydrologic context
- Environmental context
- Socio-economic context
- Political and institutional context
Water-related risks are highly local in nature but have global business repercussions.
A region’s physical water availability and quality has great bearing on how ecosystems function and industry’ and communities’ access to water services. Less water means there may simply not be enough water to support natural habitats, ecosystem services, basic human needs, and industrial and agricultural demand for water.
As water scarcity worsens, the likelihood that companies will have insufficient water supplies to maintain their operations or that their water use will negatively affect the environment or nearby communities (and therefore create reputational damage or regulatory pressure) increases.
For many industries, poor water quality increases the level of treatment, and therefore cost, required to purify water to appropriate levels for industrial production.
Many other environmental conditions can inform hydrologic conditions or otherwise create water-related risks. Different land uses and land covers can lead to drastically different water conditions.
For instance, a forested area may prevent runoff to rivers, streams, and aquifers, while a newly logged area may have greatly increased flow contaminated by erosion. Similarly, areas with heavy agricultural production have a greater demand for local water and often cause higher concentrations of contaminants in waterways.
Industries in areas with many endangered aquatic species or dysfunctional freshwater ecosystems are also more likely to face community action or regulatory pressure if their operations further threaten those species and ecosystems.
Business practices are often more highly scrutinized in areas where community access to sufficient water services is limited. If a company is located adjacent to a community that routinely does not have enough water to drink or sustain their livelihoods, the company may be seen as complicit in or causing that lack of access.
Limited access to water services may be caused by a lack of political will or capacity unrelated to industrial activity. Regardless, an industrial facility with plentiful access to water supplies in an area where communities do not have sufficient water services can lead to reputational damage for the company.
In 2010, the UN General Assembly and Human Rights Council formally recognized the right to water and sanitation, affirming access to a sufficient amount of safe drinking water for personal and domestic uses as a basic human right. Furthermore, The UN’s recent “Protect, Respect, and Remedy” Framework for human rights articulates businesses responsibility to proactively ensure that they do not infringe upon any human rights. These developments have significantly increased the potential for water-related impacts caused by business operations to lead to risk.
Political and institutional context
An industrial facility’s exposure to risk is dependent on the ability of public water policy and management to deliver water services, manage their own water-related risks over the long-term, create effective allocation regimes, and develop and enforce water quality regulations.
In many cases, failures in water policy and management lead to insufficient, in terms of both quantity and quality, or inconsistent water deliveries to industry. In others, poor management leads to insufficient in-stream flows, degraded water quality, and limited community access to water; all of which can exacerbate the negative impacts of industrial water practices.
Political and institutional problems are most common in the global South where governments typically have less money to manage water resources and where corruption is more widespread. That said, institutional water problems are evident throughout the world.