Drought Dries Up Profits for Companies and Big Investors

Corporate water strategy is undergoing a major business model shift. 

Previously seen as a simple regulatory hurdle, a heightened level of global water risk combined with an increase in stakeholder transparency and more socially and environmentally responsible consumers have corporations turning to water stewardship.

“You can’t do anything without water, so regardless of what you manufacture, you need water,” Will Sarni, Director and Practice Leader of Water Strategy and Social Impact Practice at Deloitte Consulting LLP, says.

“If you don’t have water, you have business disruption, you have reputational risk and regulatory risk, so it is much more complex and has the potential to create a lot more value than previously thought with climate change and greenhouse gas emissions.”

Historically, companies have framed water as a “compliance issue,” Sarni continues. The difference between modern water stewardship and an outdated water management approach lies in the recognition that water risk affects the length of the corporate value chain, particularly in industries highly dependent on water, like manufacturing, energy, mining and agriculture.

The Pacific Institute identifies three categories of water-related business risk: physical/operational (too little water, too much water, water unfit for use), reputational/stakeholder (how stakeholders view companies due to real or imagined negative impacts) and governance/regulatory risk (risks related to public water governance or ineffective, poorly implemented or inconsistent water-related policies and regulations).

A strategic approach to water stewardship not only ensures long-term corporate value, infrastructure, environment and shareholder reputability, but offers a number of potential business opportunities. Because water risk is a dynamic issue with such a broad range of consequences, effective water stewardship requires collaboration between businesses, government agencies, NGOs, environmental think tanks and research groups.

The First Drop

Swapping water risk for reward begins with mitigating operational water risk—scarcity, flooding or contamination—through effective water management.

The industrial effects of a sustainable water stewardship system range from production costs to product value. Quality, quantity and regional availability all factor into an effective balance.

“When we look at water risks—the flipside being value creation—they’re physical risks,” Sarni explains. “Do you have enough water when and where you need it, the right quality and reputational risk and regulatory risk? If you don’t address those risks then you’re impacting your value as a business and it manifests itself in the social license to operate business disruption because of lack of raw material.”

“The cost and price of water is the first paradigm that has to change. First of all, we have never matched the actual cost of the water with the ability and the means needed to deliver water. It has been out of alignment,” Bryan Stubbs, Executive Director of the Cleveland Water Alliance, says. “That being said, for the first time, businesses are realizing the value of water as part of their process at an increasing rate.”

Dan Henkle, President of the Gap GPS +0.27% Foundation and Senior Vice President of Gap Inc. Global Sustainability, understands that the global clothing retailer requires water at every stage of production. “If you think about everything from growing cotton to making fabric to laundering our product to finishing our product, it is in every single thing that we do,” he says. “At the same time, our business relies on people, and people need water to lead healthy and productive lives. So we are working to take an integrated approach to the benefits water stewardship has to the environment, society, and our business.”

While the direct effects of sound industrial water management are immediate, Sarni says the greatest inherent value in water stewardship practices lies in stakeholder response. “[Water] is a basic resource input for companies, coupled with the fact that stakeholders care to varying degrees how you manage your resource that is ultimately shared with other parties,” Sarniexplains. “That’s really what the value is all about.”

The Bottom Line

Inevitably, the social and environmental effects of corporate water strategy extend far beyond the bottom line. Nascent technologies and tactical management strategies benefit the corporation, the community and the surrounding environment.

“The availability of abundant, clean water for all is fundamental to achieving sustainable development, including the avoidance of dangerous climate change,” Lamb says. “If given proper attention and consideration, water security can be transformed from a limiting factor into an opportunity to drive energy efficiency and clean power generation.”

The only global environmental disclosure agency, CDP’s 2015 Global Water Report listed a number of multinational companies incorporating stewardship strategies into their line of production.

• In the United States, the western drought raised water costs in Marriott International MAR -0.14%’s California, Arizona and Nevada hotels. To reduce the amount of water used, they introduced low-flow bathroom fixtures and increased the amount of drought-tolerant landscaping. The Sierra Vista Medical Centre in California also installed drought-tolerant landscaping with low-flow irrigation devices, which conserved a little under a half-million gallons of water in a single year.
• Alcoa AA -0.31% Inc. is anticipating future droughts in Australia with the development of new residue filtration technologies. Water is extracted from residue generated from the alumina refining process, and once operational, the system will have the capacity to recycle 317 million gallons of water annually. The French hygiene and forests product company SCA rerouted the Iton River around their Honouville plant in France to avoid potential pollutants in the case of a leak. In doing so, the company restored the wetlands around its plant to increase biodiversity and potentially welcome back such species as the yellow-bellied toad.
• Water scarcity in Thailand’s Yom River Basin has disrupted production at Premium Tobacco, leading them to replace floor irrigation with drip irrigation. In Brazil, after a period of water scarcity, Carrefour stores relief on water trucks for their water supply which increased their normal costs by about 330%. They created an action plan including an awareness campaign to share best practices with all 72,000 employees, and 70 stores have installed hydric intervention technology like digital water meters and leak detection devices.
• From 2000 to 2014, Ford reduced its water use by 62%, or more than 10 billion gallons, achieving its 2016 water reduction goal two years ahead of schedule.
• Over the last five years, Nestlé decreased its water consumption per ton by 10% in the U.S. using water-saving technologies pioneered at the company’s Jalisco, Mexico dairy factory to create the first “zero water” facility projected to save 63 million gallons of water annually. Planned investments in conservation measures combined with additional efficiency measures are projected to save 144 million gallons of water per year.
• Over the last decade, The Coca-Cola Company has replenished the equivalent quantity of its annual global water use with community projects and infrastructure improvements, watershed support, reforestation and the treatment and recycling of 145.8 billion liters in local supplies. This September, through their partnership with USDA, Coca-Cola replenished one billion liters of water through the restoration and protection of damaged watersheds on national forest land, which provides drinking water to more than 60 million Americans, support approximately 200,000 full- and part-time jobs and contribute over $13 billion to local communities annually.

No industry can advance without a strategic approach to water management, regardless of the sizable advancements they may aspire to. Stubbs witnessed this firsthand when he took the stage as a panelist at a smart city conference in Austin this June alongside four other city officials.

“They talk about how smart they can make their cities and how they can drive economic output, but the fact is, 46% of the water they treat goes toward the manufacturing of goods that we buy. If you don’t have the water regularly available, that’s going to be a limiting factor,” he says. “So you could have the smartest city in the world, but if you don’t have enough water to cool your cooling towers for your databank, what’s the point?”

Read full article at: Forbes