Supply Chain

Are Corporate Eyes Watching Water?

Climate change is only one of the issues to which corporate leaders must be attentive. We live in a world that increasingly sees acute water problems — in some areas too little (drought), in others too much (flooding), and elsewhere poor quality (pollution, algal blooms, or saltwater intrusion, among other issues). New York Times columnist Thomas Friedman has pointedly stated that governments that are inattentive to water issues “are playing with fire.”Companies must become increasingly adept at not only running their core business well, but also demonstrating judicious water management and stewardship.

By Sissel Waage | Published 9 years ago | About a 5 minute read

Climate change is only one of the issues to which corporate leaders must be attentive. We live in a world that increasingly sees acute water problems — in some areas too little (drought), in others too much (flooding), and elsewhere poor quality (pollution, algal blooms, or saltwater intrusion, among other issues). New York Times columnist Thomas Friedman has pointedly stated that governments that are inattentive to water issues “are playing with fire.”

Companies must become increasingly adept at not only running their core business well, but also demonstrating judicious water management and stewardship.

Yet, few companies are seriously assessing how water stress, in all of its forms, could play out for supply chains, operations, and ultimately profits as well as return on investment.

The core challenges are clearly set out by the CEO Water Mandate as including: increasing water demand; water scarcity, as well as unsustainable supply; declining water quality; unmet needs; changing expectations; and climate change.

Rather than exploring this full set of issues, corporate leaders commonly focus only on spreadsheets and modelling potential water price increases. This approach grossly simplifies the situation because the historical trend analysis of cost increases appear manageable, such as the 2014 study which that the global average combined tariff rose by 4.3 percent.

But, the question is not just how fast and in what nations/geographies water cost changes will occur. Rather, it is whether or not current users will continue to get access to the needed quantities of water, for any price — particularly in areas where the water demand and supply lines are heading in completely opposite directions.

It is essential to remember that water rights, as all legal rights, are granted — and can be reviewed and renegotiated at any time. In periods of water crisis, the likelihood of reconsideration will grow and, in fact, has precedent.

For example, in Australia**,** and particularly the Murray Darling Basin, years of drought and water crisis sparked significant re-working of water licenses and laws through the 2004 National Water Initiative. The 2014 “Water Recovery Strategy for the Murray Darling Basin,” as laid out in a report, de-coupled permanent water rights from land ownership rights. Water rights are now issued as a share of the available resource — on a seasonal basis — rather than as a specified quantity of water. Similar discussions around water use rights, allocations, and related issues are underway in a growing number of geographies that are facing drought and significant water issues.

Another issue often overlooked in cursory corporate reviews of water risks is the growing interest of governments to create completely new revenue sources for water projects — above and beyond rate hikes.

One such approach is applicable in regions where water sources are polluted, namely the “polluter pays” principle. Applications are underway, such as in the European Water Framework Directive, which states that “Member States shall take account of the principle of recovery of the costs of water services, including environmental and resource costs […] in accordance with the polluter pays principle.”

Another area of public sector engagement and exploration as a new approach to funding for water infrastructure has emerged from thinking beyond rebar and cement — and shifting focus to trees and open green spaces. For example, the US Environmental Protection Agency (EPA) has supported green infrastructure projects since 2007 to mitigate flooding risks. In 2013, the EPA released a new strategic agenda (PDF) renewing the Agency’s support for green infrastructure and outlining the actions the Agency intends to take to promote its effective implementation. Other countries around the world are also taking notice of the opportunity and need for investing in green infrastructure as a component of addressing water issues. Documenting the global spread of uptake, NGO Forest Trends concludes that there is growing evidence “of a policy shift to ‘natural infrastructure’ approaches in many countries.” Forest Trends’ business summary of the report pointedly states: “Regulatory, accounting, and tax systems are being restructured to create both incentives and hard obligations to invest in the natural systems that deliver clean water and increase resilience to climate/disaster risk” (emphasis added).

Within this emerging context, corporate leaders are well-advised to assess water risk and craft strategic plans for demonstrating that their business is a steward of water across operations, as well as ideally throughout supply chains.

The rationale is simple: water use rights are ‘liquid’ — in the sense that they can be legally reviewed, re-considered, re-written, revoked or made immaterial by a lack of water flowing from a faucet or pump (or amid concern that ecological systems and aquatic species do not have adequate water flow).

The question for business leaders is therefore: Have we assessed our water risk and opportunity, at our sites and throughout our supply chains? And what is our plan to address risk and run our businesses effectively?