Sustainable water practices help you manage risks and seize opportunities.
Stewardship is not just about helping the world, it’s about making business stronger and more resilient. By implementing water sustainability practices, companies reduce costs, protect themselves from operational disruptions due to insufficient water supplies, and maintain and strengthen their license to operate, among many other benefits.
Water poses critical risks to your business.In its 2015 Global Risks Report, the World Economic Forum ranked water crises as one of three risks of highest concern to society worldwide (World Economic Forum, 2015). In addition to often posing severe risk to ecosystems and communities, water crises can severely undermine business viability and economic well-being. According to CDP, two thirds of the world’s largest companies are reporting exposure to water risks, some of which have potential to limit business growth. Forty-three percent of these risks are expected to materialize now or within the next three years (CDP, 2014). Businesses from a wide variety of sectors and regions around the world face increasing risks related to water. These risks range from disruptions to or stoppages of operations, to decreased brand image, to a diminished value in the eyes of investors and consumers.
Physical risksPhysical risks stem from having too much water, not enough water, or water that is unfit for use. Scarcity can halt industrial production simply because there is not enough water for production, irrigation, material processing, cooling, washing, or cleaning. A contaminated water supply may require additional investment and operational costs for pre-treatment. Availability and affordability of clean water may affect the interest or ability of customers to purchase or use certain water-intensive products and services. Water scarcity can also affect businesses indirectly by altering energy and food production. In 2001, energy production in São Paulo, Brazil, was highly constrained as a result of both severe drought and government energy tariff policies. To prevent blackouts, the government imposed quotas aimed at reducing energy consumption by 10–35 percent. Many industries based in southeastern Brazil were plagued by reductions in operational capacity, production delays, or increased production costs (CLSA et al., 2006).
Reputational risksReputational risks stem from the perceptions of communities, investors, or consumers that a business’s water management practices are irresponsible or unsustainable. Affected communities, civil society, investors, consumers, and the general public are increasingly engaged in issues of water sustainability. Inefficient water use or excessive pollution by a company in a sensitive river basin, whether real or perceived, can be incredibly damaging to a global brand’s reputation, share price, and ability to conduct business. For example, advocacy campaigns in India have already forced Coca-Cola to close its plant in Kerala and recommended it pay $48 million in damages due to the belief that Coca-Cola’s groundwater pumping hindered communities’ ability to extract water (India Resource Center, 2010).
Regulatory risksRegulatory risks stem from changing, ineffective, poorly implemented, or inconsistent public policy or regulations. Global water challenges, unsustainable industrial water practices, and increased concern among local communities about water are all putting pressure on policymakers to explore new policies. In many countries, water service providers are considering higher water prices to promote more efficient use to curb water scarcity. In others, governments are regulating industrial effluent to clean up their rivers, lakes, and streams. However, regulatory risk is arguably more prevalent where governments are simply not able to effectively manage their water resources or create effective policies and regulations. In many areas of the world, crumbling infrastructure leads to incredible water losses, thereby exacerbating water scarcity. In others, a lack of water quality regulations causes rampant pollution to the extent that local industries must pay high costs to treat their incoming water before it is suitable for use.
Risk due to company operationsMany companies also find it helpful to understand risk in terms of its key source, namely the nature of their operations or the river basin context in which they operate. Many water risks to business are caused by or exacerbated by unsustainable and inefficient company operations. Examples include wasteful and inefficient water use, insufficient wastewater treatment, and water-intensive or polluting products. Companies typically have direct control over these elements of their business. Those that use water inefficiently have higher operational costs and are more susceptible to water stress and regulations limiting water use.
Risk due to basin conditionsWater risks are highly local in nature. A certain amount of water used in an area where water supplies are scarce will have a much greater impact than the same amount in an area where water supplies are plentiful. As such, the extent to which a company faces water risk is inextricably linked to local conditions: whether there is plentiful water, whether that water is clean, whether nearby communities have sufficient access to water, whether ecosystems have the water they need to function, and whether local governance effectively manages water resources for all.
Water risk in the value chainWater risks manifest throughout a company’s value chain. Indeed, for most industry sectors, the largest portion of their water use is embedded in the production of raw materials such as food crops, fibers, and metals, rather than in the company’s own operations. When water challenges decrease yields and quality of inputs on which companies rely, those companies face limited production or increased costs, and ultimately have a more difficult time remaining profitable. Companies are also exposed to water risks when 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 or are highly socially conscious.
Water also creates ample opportunities to grow your business.Though water challenges pose many risks to businesses, they also present a variety of business opportunities in cost savings, new markets, productivity, staff retention, and increased brand value. According to CDP, in 2014, no fewer than 75 percent of responding companies report water-related business opportunities.
Saving money through water use efficiencyWater costs money, so using less water can be a quick way to decrease operational costs. UK company Diageo plc reduced the volume of its water withdrawals by nearly one million cubic meters in 2014 and estimates the associated cost savings at US$3.2 million total (CDP, 2014). The introduction of a new soldering practice at Cisco significantly reduced water use and wastewater, saving the US electronics manufacturer more than US$1 million per year (CDP, 2014). Water efficiency also drives cost savings through reduced energy use and waste. Simply put, the risk mitigation achieved through stewardship actually pays for itself, and then some.
New marketsBeyond cost savings, many companies are developing products that help fight ensuing water crises, allowing them to drive revenue while creating value for people and planet. Bayer Crop Sciences is developing plant strains that can thrive in water-stressed areas, and is promoting efficient irrigation techniques (CDP, 2014). Chemicals giant BASF estimates that water saving, recycling, reuse, and drinking water treatment products offer the company potential sales of US$1 billion to 2020 (CDP, 2014). Unilever has developed Magic Water Saver liquid, which reduces the amount of water required to wash clothes and is now being tested in Andhra Pradesh, India (Unilever, 2015).
Productivity and talent recruitmentSustainability practices generally, including those related to water use efficiency and wastewater treatment, motivate significant boosts in worker productivity and ultimately business profitability. A 2010 study from Hewitt Associates surveyed over 100,000 employees from over 200 workplaces and demonstrated a correlation between corporate social responsibility (CSR) efforts and employee engagement (CBSR and Hewitt Associates, 2010). According to a 2006 Towers Perrin survey, companies with highly engaged employees have a more than 50 percent boost in operating income compared with companies with low engagement (Towers Perrin–ISR 2006). Water stewardship supports the bottom line not only through reduced costs and risk management, but also by getting more out of your employees.
Use stewardship to manage water risks and seize opportunities.Water stewardship is an overarching, dynamic framework for understanding and addressing water risks to your business. Stewardship offers approaches to anticipate and manage the wide range of water risks businesses may face.
The Business Benefits of Stewardship
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Use stewardship to help people and planet.Despite all the business reasons for implementing these practices, stewardship is fundamentally about supporting a healthy planet and thriving communities. Through stewardship, companies reduce their impact on the environment by using less water and eliminating pollution. Companies support their workers and customers by making water resources more plentiful and available and by engaging them in dialogue. Stewardship drives healthy, sustainable river basins by encouraging organizations and communities facing the same challenges to work together toward mutually beneficial outcomes. In short, stewardship allows business to thrive while creating value for the ecosystems and people on which business relies.
- Water poses one of the greatest risks to the economy today – two-thirds of businesses face water risks.
- Stewardship allows your company to identify which strategies will be most effective in managing risks to your business while meeting stakeholder expectations and needs.
- Water sustainability practices reduce cost to your business through reduced demand for water and energy. Stewardship pays for itself.