Water accounting—as well as companies’ need for and use of it—has evolved significantly over time. In exploring these needs and their evolution in recent years, we summarize when and for what reasons companies are seeking to use existing methods and tools, along with the questions they are asking with regard to their corporate water use/discharge and the resulting impacts and business risks. This review is divided into four inter-related categories: Operational efficiency, product eco-design, sustainable manufacturing Water risk assessment/identification Managing water impacts and water stewardship response Communicating water risk/performance with stakeholders These categories are somewhat artificial and have a great deal of overlap, but do represent the broad types of applications for which these methods and tools are used, as well as the evolution of corporate water accounting over time. These areas of interest to companies are influenced by a number of factors, including the pursuit of operational efficiencies, strategic planning, brand management/ corporate reputation, and corporate ethics/ philanthropy. However, at their root, they are all driven by the desire to identify and reduce water-related business risk (and seize opportunities), whether that be through building competitive advantage, ensuring long-term operational viability, or maintaining and/or improving social license to operate. Because understanding and mitigating the interrelated issues of water risk and impact is a core driver for emerging water accounting methods and tools, they are explored in detail in Business Risks to Water Quality. It should be noted that companies’ various accounting needs (e.g. product-level, company-wide, and impact assessments) all require different types and amounts of data. Productlevel and company-wide assessments require internal production data from many different watersheds around the world. They can also utilize watershed data, but this is typically only cursory data taken from global indexes. Due to the variety of potentially impacted watersheds, these assessments do not attempt to comprehensively address complex local issues, but rather to drive sustainable production and consumption practices (and in doing so reduce the pressure on freshwater systems). Place-based assessments look specifically at water use in one (or a few) watersheds in order to gain a better understanding of that system. They can be used to assess a company’s impacts on that watershed as well as the business risks created by external conditions. These assessments rely on watershed data regarding water stress, pollution, environmental flows, access to water services, etc. Operational efficiency, product ecodesign, sustainable manufacturing The most basic (and well-developed) sphere of corporate water accounting relates to internal management and decision-making, which in this report encompasses issues such as operational efficiency, product eco-design, and sustainable manufacturing. As a starting point, companies often measure the amount of water they use and discharge directly at the facilities they own or operate. This practice has been demanded by law and regulations in many developed countries since at least the 1970s and is often carried over to facilities in less-developed countries. These measurements have been largely driven by a desire to maximize operational efficiencies (e.g., decrease the amount of water-related infrastructure needed and to reduce costs and/ or energy needed for production processes and/or wastewater treatment). To this end, companies typically look at the efficiency of their direct operations in terms of volume of water withdrawn/consumed and amount and quality of wastewater discharged per unit of production or unit of sales. Companies are increasingly applying these same measurements to their key suppliers in order to better assess the water requirements for products and operations throughout the value chain. Eventually, such measurements can be used as the basis for operational “hotspotting,” where companies can identify the components of their value chain that use and discharge the most water. Key questions companies ask with regard to accounting for their water use/discharge for internal management purposes include: How much water do we use in all of our owned/operated facilities? How efficiently is this water use normalized to production? How much wastewater is discharged to the natural environment and of what quality is it when it leaves the facility? What are the major contaminants released? How much water do my suppliers use? How efficiently? How much wastewater do they discharge and of what quality? In which segments of my value chain does my company use/discharge the most water? Because approaches to internal water measurement typically vary depending on the company and/or are proprietary, we do not explore this area of water accounting in much detail, nor do we analyze the topic in a standalone section in this report. That said, the authors recognize that such internal water measurement typically provides the foundation (i.e., inventory) for corporate water accounting methods such as WF and LCA that we review in detail in this assessment. Likewise, we acknowledge that some aspects of improved operational efficiencies and sustainable manufacturing are informed by real or perceived business risks and a science-based understanding of the actual environmental and social impacts associated with the company’s water use/discharge. The discussions of risk and impact assessment as a management decision support tool are included in Impacts and Water Quality. Lastly, to the degree to which companies communicate commonly used metrics associated with their water use/discharge (e.g., GRI reporting), we address such water measurement in Conveying Information to Stakeholders. Water risk assessment/ identification (e.g., “hotspotting”) As global freshwater scarcity has become more pronounced and as the supply chains of most major companies have spread across the globe, concerns have mounted among companies regarding their continued access to water resources. Further, companies recognize that their water practices might be negatively impacting communities or ecosystems, thus creating business risks. However, the simple measurement of corporate water use and discharge does not speak to a company’s water risks or impacts per se. Water risks depend on the highly variable local context (i.e., watersheds, ecosystems, communities, and water users) in which the company and its suppliers operate. Understanding water-related business risk means considering the local context in which companies find themselves. In the 1980s and 90s, companies first started assessing the status of water resources in locations of key operations, though these assessments typically only took into account physical water availability (i.e., the amount of natural water available on an annual average basis, perhaps normalized to population). However, while this broad measure of physical supply can provide useful contextual information, it is widely considered inadequate as an approximation of risk. More holistic examinations of local context (i.e., watershed status) evaluate factors such as the percent of available water used for human purposes, the amount of water allocated to meet in-stream environmental flow needs, the adequacy of local water management and governance capacity, and the ability of nearby communities to access (and afford) water services, among other things. These “local context” factors ultimately lead to a better understanding of a watershed’s relative water abundance or scarcity, as well as the company’s water-related risks. By using geographic “hot-spotting” techniques to identify facilities located in watersheds considered to be water stressed, companies can begin to prioritize the locations in which to invest in operational efficiencies, contingency planning, policy engagement, community outreach, or other risk-mitigation measures. Companies manage business risks through a number of different avenues depending on the nature of their impacts, the nature of their operations, and the watershed in which they are located. However, there are a few broad stewardship activities that may lessen impacts and drive down many types of risks. For instance, improving operational efficiency (using less water or re-using it or discharging cleaner water per unit production) decreases demand for water supplies and therefore alleviates water stress (and corollary scarcity risks) and/or reduces production costs. This efficiency may also help companies assure their continued water use by providing sufficient economic value per unit water so as to justify that allocation by policy makers. They also work with their suppliers to ensure that their goods are responsibly produced throughout their life cycle. If the most pressing risks are posed by external conditions, companies may respond by engaging with communities and public water managers within their region in order to simultaneously improve their efficient and continued access to water resources and build trust-based relationships that may help prevent future allocation debates and/or garner goodwill and positive reputation as a responsible business. Some of the key questions companies are asking with regard to assessing water business risks associated with their operations include: Which of my facilities are located in water-stressed regions (including physical, economic, and social scarcity)? What is the nature of our water use and discharge (and possible corollary business risks) in various locations? What percent of this watershed’s available water do my facilities use? What percent of the available water in this particular watershed is used for human purposes and what are the allocations among sectors? In which locations are water governance and management capacity a concern? How secure/reliable is our legal access to water in those locations? In which locations is there a high potential for reputational risk due to insufficient environmental flows or inadequate access to water services among local communities? How can I expect my exposure to waterrelated risks to change due to population growth, climate change, economic development, and other factors? Managing water impacts/water stewardship response It is widely accepted that volumetric measures of water use alone are not an adequate indicator of a company’s water-related business risks or social and environmental “impacts” as they do not consider the aforementioned local water context. The necessary, yet by far most complex component, of corporate water accounting is the assessment of the actual impacts to watersheds, ecosystems, and communities caused by corporate water use and discharge. In this context, “impacts” refer to the extent to which the volume of water used/discharged by a company in a specific watershed actually affects the availability of that water for other uses (e.g., meeting basic human needs or in-stream flows) or harms human health or ecosystems in any other way. Corporate water use can potentially have positive impacts as well (e.g., improving water quality or recharging aquifers), however most water accounting methods tend to focus on negative impacts of water use. Identifying and measuring water-related impacts (both quantitatively and qualitatively) is key to enabling companies to make effective management decisions based on accurate comparisons of water use in different watersheds, across different products, or in different components of the value chain or product life cycle. It is also crucial to understanding which facilities or products pose the greatest threat to nearby communities and ecosystems, and consequently present the most concerning business risks that must be managed. Current methods for assessing environmental impacts (e.g. effect on freshwater biodiversity or environment flows) are considerably more developed than methods for social impacts (e.g. effect on incidence of disease or human access to water). However, social impacts are equally important as environmental impacts (if not more so) with respect to business risks. Even in water-rich areas, companies are likely to be exposed to reputational and regulatory risks if they operate in an area where there is insufficient access to water services or if their industrial effluent causes human health problems. Some of the key questions companies ask in order to manage their water impacts include: Which of my facilities or products pose the greatest social and environmental impacts? Which components of my value chain or product life cycle result in the greatest impacts? How do my operations in a specific watershed affect ecosystem functions and/or in-stream flows? How do my operations in a specific watershed affect the ability of communities to access or afford adequate water services? How do my operations in a specific watershed affect human health? How might these various impacts expose us to business risks? Communicating water risk/ performance with stakeholders Once an internal assessment of corporate water use and related risks/impacts is completed, companies are increasingly disclosing this information (or part thereof) to their stakeholders and the public at large. Such reporting allows companies to be transparent and accountable regarding their water use and wastewater discharge, and also allows various stakeholders to track and provide feedback on corporate practices and performance. In Conveying Information to Stakeholders we discuss the links among various water accounting methods/tools and corporate water disclosure. Some of the key questions companies ask in regard to their disclosure of water-related information include: Are there well-established/harmonized metrics with which consumers, investors, and affected communities expect us to report our water-related data? What accounting methods are easily understood by non-technical audiences? What kind of information is most helpful for consumers hoping to make an informed purchasing decision? Do available methods provide this? What kind of information is most helpful for investors looking to assess water-related risk and/or to put money in an “ethical” company? Do available methods provide this? What kind of information is most helpful in reassuring potential affected communities and therefore supporting our social license to operate? Do available methods provide this?