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Water risk management: is it time for businesses to take the plunge?

Blog by Craig Simmons, Co-Founder and Director, 18 April 2012

Photo of Craig Simmons, Co-Founder and Director at Best Foot Forward

Writing this on the eve of the hosepipe ban, it occurred to me that so little attention has been given to the potential impact of water shortages on business. I have written extensively on carbon risk, a subject that is gaining considerable traction within the boardroom, but ‘water risk’ has commanded far fewer column inches and made it on to only a few corporate risk registers.

Are things about to change?

Last Autumn, the World Resources Institute (WRI) launched the Aqueduct Alliance, a consortium (including Coca-Cola, GE and Dow) for measuring and mapping water risk.

As someone who first started water footprinting more than a decade ago, I feel such an initiative is a welcome shot in the arm and timely too. It seems that the World Economic Forum is finally taking water seriously. Its Global Risks Report identified, for the first time, water supply crises as a top five global risk both in terms of impact and likelihood.

How are businesses exposed to water risk?

Corporate exposure to water risk can be categorised in a number of ways. The UN’s Water Mandate identifies three types of business risk:

Physical risk – Relates to water supply and quality. For example, the yield from a vineyard may be reduced as a result of insufficient irrigation or a contaminated water supply.

Reputational risk – Reputational risk manifests through tensions and conflict around access to water or the degradation of local water resources. For example, a factory sited in a geographical area prone to water stress is likely, at some point, to find itself very publicly competing for supplies with local people.

Regulatory risk – Relates to the imposition of restrictions on water use by government and the capacity of government to manage water effectively and sustainably. For example, in China, IT suppliers regularly fall foul of water discharge regulations with pollution incidents and prosecutions commonplace.

Water is a multidimensional issue – in many ways more complex than carbon. The Water Footprint Network favours the terms blue, green and grey water (to describe abstracted, precipitated and polluted water respectively) but these are only convenient simplifications that gloss over a multitude of factors. The Aqueduct Alliance’s water risk framework comprises 16 different dimensions. Perhaps most importantly, water is a geographically-specific resource that is directly linked to human welfare. It is also a renewable resource – which can lead to rapid changes in supply. The hosepipe ban is a consequence of just two dry years. Compare that to the 5, 10 and 20 year trends used in carbon management planning.

Which industries are most at risk?

Almost two-thirds of those companies surveyed by WWF in a recent report were considered to be at a high level of water risk, with agribusiness organisations topping the list. This is perhaps not surprising given that the sector is responsible for more than 70% of global water use. But, as we have seen, the interaction of factors associated with water risk means that it is difficult to make generalisations.

Research undertaken by Best Foot Forward found a number of other sectors at high water risk – not all of these are so obvious:

  • Clothing
  • Power
  • Information Technology
  • Pharma/Biotech
  • Forest Products
  • Metals/Mining

It may surprise some readers to learn that each kilogramme of paper requires 10,000 litres of water to produce. Cotton is similarly thirsty, demanding 10,800 litres per kilogramme. Production and treatment makes leather the worst offender at 17,000 litres per kilogramme.

To put that in context of the current ban, one kilogramme of paper or cotton is equivalent to running your hosepipe for around 10 hours!

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