Water scarcity, pollution, climate change, and other problematic global water trends pose major challenges to businesses now and will continue to do so in the years ahead. It is increasingly clear that the era of cheap and easy access to water is ending, creating perhaps a greater threat to businesses than the loss of any other natural resource, including fossil fuel resources. This is because there are various alternatives for oil, but for many industrial processes, and for human survival itself, there is no substitute for water.
Company executives and investors have no choice but to boost their scrutiny of water-related business risks, especially in regions where water supplies are already under stress or where governments do not have the capacity to manage water-related problems. This process is often start by understanding and examining the three different types/categories of water-related business risks:
- Physical risk – Relates to water quantity (scarcity and flooding) and water quality that is unfit for use (pollution). Physical risk may mean that a company might not have sufficient amounts of good quality water for their business operations and supply chains.
- Reputational risk – Relates to the impact on a company’s brand and can influence customer purchasing decisions. Reputational risk manifests through tensions and conflict around access to water or the degradation of local water resources. In a highly globalised information economy, public perceptions can emerge rapidly around business decisions that are seen to impact on aquatic ecosystems or local communities’ access to clean water.
- Regulatory risk – Relates to the imposition of restrictions on water use by government and the capacity of government to manage water effectively and sustainability. This may include the pricing of water supply and waste discharge, licenses to operate, water rights, quality standards, infrastructure development, water allocation, etc.
These descriptions of water-related business risks are drawn primarily from a WWF/DEG report found here.
Water Risk Framework
Source: Treating water – Sector report for engagement: Water exposure of food & beverage companies. Robeco Asset Management in collaboration with the World Resources Institute. April 2009.