For companies, direct water costs generally represent a marginal expense which can sideline any decisions to invest in better water resource management. If we compare the risks related to water and energy, an investment to improve energy efficiency would allow for a quick and significant return on investment while reducing environmental impacts; however, investing in better water management, generally leads to higher OPEX without a direct financial benefit.
Companies report $14bn in water-related costs
And yet companies are highly aware of water-related risks. Each year, the World Economic Form ranks the “water crisis” as one of the main risks for the economy as a whole. Companies that respond to CDP have reported that impacts related to water-related issues cost $14bn in 2015, and this only includes declared costs.
The numerous and diverse risk factors to be considered are closely tied to the local context: diminishing available resources, pollution and sensitivity of the receiving environment, lack of watershed governance, regulatory developments, public image for companies, climate change impacts, etc. If these risks are not identified, quantified and properly managed, the financial impact on business can be significant.
The “hidden cost” of water for companies is not negligible. Quantifying water risks means quantifying this hidden cost in order to make clear decisions to better manage this precious resource.
Additionally, these risks are not always within the operational boundaries of the company and they may exist elsewhere in the company’s value chain. If we consider an agri-food value chain, the vast majority of the water consumption is related to irrigation to produce raw goods. Reducing the risk does not only involve increasing the efficiency of processing and transformation plants, but it requires companies to work with all actors in the agricultural supply chain in order to put efficient irrigation techniques in place to ensure that better practices are taken up as well as to ensure proper local governance of the resource. Alternatively, a pharmaceutical company must consider the end of life of its products that are likely to pollute aquatic environments and it must integrate this consideration from the very first step of product development.
Evaluating water-related risks involves looking at the entire value chain.