Business Strategy for Water Challenges

From Risk to Opportunity

Stuart Orr, Guy Pegram

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351274425
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

Water is a resource under increased stress, with its management now cited as one of the greatest risks to business continuity and growth.

This concise guide for professionals offers strategic steps for developing a corporate water stewardship strategy. It will enable you to: define business water risks, and the opportunities associated with those risks; explore, through sector-specific profiles, risks associated with regulation, reputation, external response and engagement, and physical incidents; develop a clear plan and process for creating, managing and mainstreaming a corporate water strategy; identify several initiatives and new risk tools that your company can use to stay on top of best practice in water management.

With the advent of risk tools, and a growing list of testaments around business risk from water, we are now able to respond more appropriately to how this resource is impacted by and impacts upon business.

Use this book as your guide as you begin to build your company's strategy around water.

Chapter 1
Introduction

IT IS AMAZING TO CONSIDER the speed with which water risk has percolated to top the business list of concern. Today, the World Economic Forum ranks the freshwater supply crisis as the number three risk affecting the global economy,¹ but already some companies are feeling the pressure closer to home. In April 2014, McDonald’s launched their 2012–2013 Sustainability Report² to an internal McDonald’s Energy Summit. Ken Koziol, Executive Vice President and Global Chief Restaurant Officer, took questions from the assembled audience. ‘What is McDonald’s water strategy?’ was the first question.

David Grant, Sustainable Development Project Manager at SABMiller has a similar story. ‘We were used to taking questions from SRI investors [Socially Responsible Investors], but we are now suddenly being asked by institutional investors, what are you doing about water?’ After many years of companies telling us that no shareholder, investor or CEO has ever asked a question about water, things are changing. These remarks from SABMiller and McDonald’s are just two examples of what numerous other companies are telling us.

Those companies already underway with strategies to manage water are finding themselves at an advantage. McDonald’s, for example, estimated its corporate supply chain water footprint, looked at water risk for its restaurants, and used these findings in determining the company’s sourcing priorities. McDonald’s will soon be releasing their new water strategy. SABMiller has led on water for many years after having identified water as a long-term strategic risk. The message is clear: what companies are doing on water has become a top priority for their stakeholders and increasingly, their shareholders. It is certainly time for business leaders to consider water in ways that they haven’t before.

Freshwater supplies and their management stand out as one of the more formidable challenges facing humanity over the coming decades.³ In many parts of the world, water resources are stressed, and not only from a scarcity and pollution perspective. Fundamental issues relate to the governance and management of water, including investment, equity, ecological damage, loss of biodiversity and failed delivery of basic human services – the list goes on. But there are also plenty of examples where progress has been made and challenges have been successfully dealt with.

This book lays out how water challenges relate to business sustainability. It then proposes a strategic approach to water that will help you not only to understand this resource better but also to plan your own improvements, mitigate your risks and enhance the ways in which water is used and managed inside and outside your factory walls.

Some companies are already quite advanced in addressing water risks, while other are just getting started. What bears thinking through in depth are the ways that communities and companies share a complex ‘root system’ that feeds sustainable growth. If this book spurs a few more people to ask a new set of questions about water and to devise strategies and targets that will actually deal with the problems at hand, it will have met one of its fundamental goals.

1.1 From risk to opportunity – from ad hoc to strategy

To expand on what informs our perspective, it is worth explaining that the authors are career water professionals rather than sustainability experts. We have spent much of our working lives examining traditional aspects of water management: policy, accounting, regulations, governance, finance and planning, to name a few. We have come to Dō Shorts because the interest in and awareness of water issues that we see from business today is rising but is as yet largely unguided. To shift from traditional corporate sustainability thinking to collective water management thinking means recognising that the pressures, realities, risks and opportunities that business faces from water are mainly external. Therefore an understanding of how water is actually managed by governments and shared in society must supplement what has been done in improving internal efficiency. Companies need to know what has and has not worked before in water management. That is where our perspective has real value. Many businesses are starting from scratch in understanding water, when in fact much of the groundwork outside the often-referenced sustainability circles has already been done.

Water is a unique resource, constantly on the move through the global water cycle, as rainfall, rivers, streams, ice or evaporation. It is not something that we necessarily destroy by using it, but instead we use for a short while before it moves through the system to another use at another time. Globally there is enough water to meet our needs, but since water is the ultimate ‘uncooperative’ resource, this means we cannot ensure that it will arrive at the time and place and in the right condition we need it. Water is a local issue – and locally there are many aspects of water’s management and use that are out of kilter with the natural cycle. So as part of our collective education in water risk and opportunity, it helps to establish water’s fundamental difference from other natural resources.

1. Water availability is variable in time and location so its short-and long-term future availability is uncertain. One river basin may be suffering extended drought while neighbouring river basins are experiencing devastating floods. Equally, a given river basin may experience droughts and floods in quick succession. Understanding operational and strategic risk around water is therefore a different matter from understanding natural resources such as minerals or forests, which tend to be much more static.
2. Water is a finite albeit renewable resource, the availability of which is physically constrained by the infrastructure available, not to mention being legally regulated in many places by complex historical water rights systems. Differing pricing mechanisms and levels of governance of water systems all add to the complexity of managing this resource.
3. Water is non-substitutable in most domestic and productive activities. The risks associated with scarcity at the scale of a river basin are therefore very real. Put simply, while there may be substitutes for carbon in energy production, only water can be used for drinking or for irrigating crops.
4. Water is essentially a local resource. It is bulky and costly to move in the volumes typically required for production, so it can only be transferred between neighbouring river basins up to about 500 km (or even shorter distances where it has to be pumped uphill). Because of these constraints, and because water flows from upstream to downstream users, risks and responses must be understood at a river basin scale – not at a global scale as is the case with carbon.
5. Water is fundamental to life and human dignity. Consider that rivers are part of a fragile ecosystem to which human settlements have historically been closely linked for transport, water use and waste disposal, and through their spiritual beliefs. Yet, these ecological, social and cultural dimensions are juxtaposed with the economic value of water related to its use in production processes. So more than with most natural resources, water management requires getting to grips with the risks around scarcity of an economic good, balanced with political risks given water’s value as a social and ecological good.

This means that the insular thinking of yesterday’s companies, framed around efficiency and technology, can no longer by itself prepare business for the future. Applying the same theory and response as has been used with carbon won’t do it either.

It’s fair to say that some companies have grown so large that their aggregate impacts could be compared with those of nation-states. The 58 companies that were analysed by CDP (formally Carbon Disclosure Project) in their 2011 Global Water Report alone represent a market value of US$2.49 trillion, equivalent to the GDP of a G5 country. These companies collectively abstract more than 1500 billion litres of water per annum, equal to 0.6 litres per day for every person on the planet.⁴ That’s just 58 companies. While most companies already have no idea of how large or small their current dependence on water is, to our knowledge not a single company has estimated the water they will need for future growth. How will you demonstrate your understanding of evolving dependency and risk around a shared water resource? How can you anticipate the changes (social, climatic, political, investment, governance, demographics) in those growth areas over time? If your investors aren’t asking for that information yet, they will.

Water is part of the risk profile now and it’s here to stay. In CDP’s 2013 Global Water Report, 70% of companies report exposure to one or more water-related risks that could substantively affect their business. Approximately two-thirds of risks expected to impact on both direct operations (65%) and supply chains (62%) will materialise now or within the next five years. Yet only 6% of companies have targets or goals for community engagement, 4% for supply chain, 3% for watershed management and 1% for transparency, and no respondents set concrete targets or goals around public policy. That’s two-thirds of risks approaching with NO planned response!

The supporting investors of CDP are taking note. Piet Klop is Senior Advisor Responsible Investment at PGGM Investments. He argues that for mainstream investors water is all about risk – that is, risk to their investment portfolio. ‘Acknowledging that water scarcity and pollution can in fact put investment value at risk is a key step to take for companies, but especially for investors’, says Klop. He concurs that not all risk can easily be monetised, but risk does impact on long-term investment value regardless. The risk to a company’s continuity of operations and supply, risk to their future growth and risk to brand value must be considered in any reasonable profile.

What Piet Klop and other investors tell us they are looking for is ‘a strategy that doesn’t stop at improving operational efficiencies, but gradually evolves into efforts that increase companies’ water security. The rise of external risk and insecurity demands collective action with other water users and authorities. Such a strategy signals that company management understands the systemic nature of water risk, as well as its role and possibly the business opportunities in mitigating such risk.’

So if this increasing awareness and evidence of water-related risk is coming through disclosure and from investor demands, t...

Table of contents

• Cover
• Title
• Copyright
• Abstract
• About the Authors
• Acknowledgments
• Glossary
• Contents
• 1 Introduction
• 2 What Is Business Water Risk?
• 3 Strategic Steps to Developing a Corporate Water Stewardship Strategy
• 4 Going Forward – Opportunities
• Important Initiatives and Tools
• Notes