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Creating water resilience

The world's water resources are currently subject to increasing stress, which threatens ecosystems, economies and society more generally, so the reasoned and planned commitment of companies is fundamental.

by Peter Schulte
18 min read
byPeter Schulte
18 min read

This article is taken from World Energy (WE) number 46 – Water stories

Water is perhaps the most vital natural resource on the planet. It is necessary for human survival and a critical input into our food, manufacturing, and energy systems. It also sustains the ecosystems and climates upon which both our built and natural world rely. Today, the world’s water resources are increasingly under stress threatening ecosystems, economies, and society more broadly. According to the World Economic Forum, water crises have been among the top five global risks in each of the last seven years. 

Humans withdraw about four thousand cubic kilometers of water globally every year. This is triple what we withdrew 50 years ago, and withdrawals continue to increase at a rate of about 1.6 percent per year. More than 2 billion people live in river basins where water demand outstrips supply, known as water-stressed areas. By 2050, that number is expected to jump to 5 billion. Currently, over 80 percent of the world’s wastewater is discharged back into rivers, streams, and oceans without any treatment, causing widespread damage to ecosystems and contamination of critical human water sources. Often, humans are unable to reliably access physically available water supplies due to inadequate infrastructure and weak governance. Today, 2.1 billion people still lack access to safe drinking water and 4.5 billion people lack safely managed sanitation services. Every year approximately 340,000 children under five die due from diarrhea-related disease, most commonly caused by inadequate access to drinking water, sanitation, and hygiene (WASH). 

Underlying all the world’s water challenges are the looming repercussions of our changing global climate. Climate change introduces a huge amount of uncertainty to water supply reliability in the future. Higher temperatures mean snowpack melts more quickly, meaning more intense floods and longer droughts. The number of people at risk from floods is projected to hit 1.6 billion in 2050, with $45 trillion worth of assets at risk. On the other extreme, it is estimated that global water demand will increase 55 percent by 2050 and 3.9 billion people will live in river basins under severe water stress. 

 

Water-Related Risks to Business

These water challenges not only pose grave threats to our ecosystems and communities, but to businesses and our economy more broadly. Companies that fail to address the many water risks facing their business put themselves in danger of:

  • Operational and supplier disruptions
  • Higher operational costs
  • Loss of legal or social license to operate
  • Heightened absenteeism among workers
  • Diminished investment
  • Saving money

Operational and supplier disruptions

Many of the world’s business industries – food, beverage, apparel, chemicals, mining and metals, semiconductors, and many others – are heavily reliant on water as a key input into their production processes and often a key ingredient in their products. If the river basins in which they operate run out of water, they simply cannot continue production in that location. If a company’s suppliers face the same challenges, it may be left without a reliable source of key inputs and still have to halt production. In 2016, companies reporting to CDP reported $14 billion in water-related impacts to their businesses in that year alone, with over a quarter of all reporting companies already reporting detrimental water-reporting impacts to their business.

Higher operational costs

Even when water remains available to companies in times of severe water stress, it may still come at a high cost to the business. In many situations, water stress forces utilities to raise the price of water in order to motivate conservation. It can also mean higher energy costs as there is less water available to run hydropower plants and less water to cool processes in thermoelectric plants. Likewise, if river basins are so polluted as to make fresh water supplies unusable, businesses will face much higher pre-treatment costs for their water inputs. In 2015, drought in hydropower-dependent Brazil raised water costs for General Motors by US$2.1 million and electricity costs by $5.9 million. 

Loss of legal or social license to operate

Even if there is physically enough water for companies to continue production and prices remain stable, companies can also still lose their license to operate if they are perceived as unduly contributing to water-related challenges. They can lose their legal license to operate if local regulators deem their activities out of step with local policy or detrimental to the good of the basin. They can lose their social license to operate if activism from local communities makes business in that area untenable.

Heightened absenteeism among workers

Companies are also increasingly seeing the great risks caused by insufficient access to drinking water, sanitation, and hygiene (WASH) services at the workplace and at home for their workers. If workers do not have sufficient WASH services, they are much more likely to become ill due to water-borne diseases or have to stay home to take care of ill children, thus leading to greatly diminished productivity for companies. Diarrheal diseases were the fourth largest source of hospital admissions and tenth largest cause of death at Newmont Mining, Ghana. Investment in their sanitation systems led to a 30-40% reduction in the avoidance of $28,000 in medical costs per year in one mining community.

Diminished investment

Companies that fail to manage their water risks will more and more see heightened skepticism and caution from potential investors. Today, 650 investors with combined assets under management of US$87 trillion urge companies to both report their water-related risks and impacts, and to take action to mitigate them, via CDP.

Saving money

Water costs money, so using less water can be a quick way to decrease operational costs. For example, UK beverage company Diageo plc reduced the volume of its water withdrawals by nearly one million cubic meters in 2014 and estimates the associated cost savings at US$3.2 million total (CDP Water Report 2014). 

Corporate water stewardship – what and how?

Water stewardship is an overarching, dynamic framework for understanding and addressing the water risks and challenges described above. Through stewardship, businesses learn about the impacts caused by their operations, identify and manage the risks facing their operations, engage suppliers to improve their performance (and in doing so, manage the company’s own risk), and promote sustainable water management in river basins of strategic importance to the business, while also contributing to the achievement of the Sustainable Development Goals. While there are common elements to most stewardship strategies, there is no one-size-fits-all approach to corporate water stewardship. Each company has unique risks – and therefore unique solutions and strategies – based on its industry sector and the particular circumstances of the river basins in which it operates. With that said, most corporate water stewards implement a short list of core activities spread across five main categories of action:

  1. Operations: Managing water use, wastewater, and WASH services in owned-and-operated sites
  2. Context: Assessing river basin and value chain circumstances to understand risk and impacts
  3. Strategy: Incorporating water considerations into core business strategies and functions
  4. Engagement: Connecting with key partners to manage the root causes of water risk
  5. Communication: Engage stakeholders to garner feedback on water practices

Operations

Operations activities refer to improving water management practices at companies’ owned-and-operated facilities. They generally span: 1) ensuring all employees have access to drinking water, sanitation, and hygiene; 2) measuring and monitoring water performance; and 3) driving water use efficiency and wastewater treatment. Facility managers often implement these techniques simply as good practice for employee health, efficiency, and cost reduction before a broader corporate strategy is developed. Many of these practices are low-cost, easy to implement, and have short returns on investment. Key operations actions include: Using water meters to detect leaks and eliminate wasteful uses; Regularly testing wastewater quality; Developing facility-level KPIs related to water use and pollution; Developing water management plans for every operation; Implementing water-efficient processes, technologies, and behaviors; Managing chemical inputs and treat and reuse wastewater; Ensuring clean and sufficient drinking water, sanitation, and hygiene at the workplace.

Context

Context activities involve developing a deeper and more dynamic understanding of the water context in which a company operates. This includes assessing the degree of water stress in the river basins in which they operate, the effectiveness of water governance in those areas, and the broader water-related circumstances of their value chains. Key context actions include: Assessing the degree of water stress facing their operations; Prioritizing operations based on degree of stress; Developing a robust understanding of specific water challenges in priority operations; Conducting comprehensive water use assessment for company and its value chain; Assessing suppliers’ exposure to water stress; Prioritizing suppliers based on severity of stress.

Strategy

Water stewardship is often most effective and most valuable when it is systematically integrated into a broader business strategy, rather than tacked on as a CSR or philanthropy function. For many businesses, water is such an important input into its operations and those of its suppliers, that a strategy to ensure sufficient and consistent supplies of it is not only helpful, but arguably required for long-term business viability. Integrating water management into business strategy means many things, including: Setting water-related performance targets; Creating accountability measures and incentives for water-related goals; Establishing a water task force among upper management to track and address water issues; Developing water assessment and action policies that are applied across a company’s facilities.

Engagement

Truly transformational, comprehensive stewardship practice requires companies to actively engage with others who share the same water challenges (e.g., other businesses, NGOs, and government agencies) and value chain actors (e.g., suppliers and consumers). Many of the most pressing and impactful water challenges are impossible to fully address alone. Companies must work with others with whom they share water resources to ensure those resources are managed sustainably and equitable. Engagement activities are among the most challenging and complex of stewardship, but are often the most impactful and important. They include: Preparing for action & identifying potential partners; Conducting impactful, mutually beneficial collective actions; Engaging governments to encourage robust water governance; Establishing communication and trust with suppliers and consumers; Raising water awareness among suppliers and consumers; Incentivizing improved stewardship performance among suppliers and consumers.

Communication

Developing and maintaining continuous dialogue with key stakeholders is critical to all stewardship efforts. It helps companies to truly understand the water challenges they face and to develop solutions that will be effective and find favor among those closest to them. Examples of common communication mechanisms include internal employee memos, annual online and print reports, community forums, contracts, and online suggestion / feedback mechanisms.

The UN Global Compact’s CEO Water Mandate

Acknowledging the severity and urgency of the world’s water challenges and the critical role business has to play in addressing them, in 2007 the United Nations Global Compact and UN Secretary-General launched the CEO Water Mandate. This special initiative was created out of the acknowledgement that global water challenges create risk for a wide range of industry sectors, the public sector, local communities, and ecosystems alike. As such, cross-sectoral collaboration is the most effective and credible path to water security. The private sector can be a critical partner in this effort. 

Over a decade later, the Mandate – implemented by the Global Compact in partnership with the Pacific Institute –  remains a leading player advocating for and facilitating corporate water stewardship around the world and supporting the achievement of Sustainable Development Goal 6 on Water & Sanitation. The Mandate advances corporate water stewardship in many ways, most prominently: Garnering formal commitments to action from companies around the world, defining good practices and developing tools that support businesses’ stewardship efforts; and facilitating action on-the-ground. The Mandate is now endorsed by more than 170 companies worldwide including: AB InBev, The Coca-Cola Company, Danone, Diageo, Dow Chemical, Ecolab, Ford Motor Company, General Mills, H&M, Hilton, Mars, Microsoft, Nestle, Netafim, Nike, PepsiCo, PVH, Radisson, Siemens, Unilever, and many others. By endorsing the Mandate, companies publicly commit to advancing water stewardship across six commitment areas: 

1.      Direct Operations: Ensuring their owned-and-operated facilities are sustainable

2.      Supply Chain & Watershed Management: Leveraging stewardship practice throughout their value chains and in the river basins in which they operate

3.      Collective Action: Working with a broad coalition of stakeholders to enact lasting, comprehensive, and equitable stewardship solutions

4.      Public Policy: Supporting governments in their efforts to drive effective water governance 

5.      Community Engagement: Working with communities most affected by a company’s operations and water challenges more broadly

6.      Transparency: Regularly reporting publicly about their risks, impacts, and response strategies

Once they have endorsed the Mandate, companies must publicly report on their progress toward water stewardship on an annual basis, in what are known as Communications on Progress or COPs. The Mandate is governed by the Steering Committee, which oversees the initiative’s strategic, administrative, and financial arrangements. The Steering Committee is composed of:

•         Ten corporate representatives from diverse geographies who serve staggered two-year terms. Corporate representatives will be drawn from Action Platform participants only.

•         One representative of the UN Global Compact Office

•         Special Advisors representing different stakeholder interests and spheres

•         Patron sponsors of the Action Platform – Water Security through Stewardship

The Secretariat makes decisions based on a consensus model. When consensus cannot be reached, a simple majority vote decides matters.

Over the last 13 years, the Mandate has published a variety of guidance documents and tools meant to help businesses and others understand water challenges and implement meaningful solutions. Some of the Mandate’s most notable publications include:

•         Guide to Responsible Business Engagement with Water Policy (2010)

•         Water Action Hub (2012)

•         Guide to Water-Related Collective Action (2013)

•         Corporate Water Disclosure Guidelines (2014)

•         Guidance for Companies on Respecting the Human Rights to Water and Sanitation (2015)

•         Guide for Managing Integrity in Water Stewardship Initiatives (2015)

•         Guide to Setting Site-Level Targets Informed by Catchment Context (2019)

The Mandate is also actively involved in a number of place-based efforts, including Businesses for Water Security in the Noyyal-Bhavani and the California Water Action Collaborative.

The Mandate is always looking to help more companies understand their water risks, the specific responses that will be most strategic for their companies, and how their company can help achieve the Sustainable Development Goals and water resilience in basins around the world. Endorsing the Mandate is an aspirational pledge; the initiative welcomes companies of all sizes and all levels of water stewardship maturity so long as they commit to continuous improvement. 

The author: Peter Schulte

He is a Senior Associate at the Pacific Institute, a water sustainability research organization based in California. Much of his work is spent advocating for corporate water stewardship and supporting the UN Global Compact’s CEO Water Mandate.