Water-related business risks can occur throughout a company’s value chain, including in their:
Raw Material Production
For most industry sectors, the largest portion of their water footprint is embedded in the production of raw materials such as food crops, fibers, and metals. Many companies’ raw material production lies far upstream from direct operations; as a result they typically fail to assess water-related risks in this segment of their value chains. Nevertheless, water scarcity, pollution, climate change, and other challenges can decrease agricultural yields and quality thereby limiting production or increasing costs for companies purchasing those goods.
In some sectors (e.g., high-tech/electronics and apparel), the bulk of the water footprint is associated with the manufacturing activities of suppliers. This can lead to a false sense of security about water risk exposure, with companies dismissing water issues as not being material to their business.
Water risk has a tremendous effect on direct operations. A water shortage or a polluted supply will affect production output and costs. Changing, ineffective, poorly implemented, or inconsistent water policies can also disrupt a company’s access to water, potentially limiting their ability to consistently produce their goods.
Companies may also be exposed to water-related business risks if their products are water-intensive (e.g., washing machines) or contribute to water pollution (e.g., certain detergents). These risks are further exacerbated when a large proportion of a company’s consumer base is located in areas of high water stress.