Business Risk Related to Water – What’s Your Risk Exposure?

d-rop.jpgby Karen Losee
According to Watching Water, A Guide To Evaluating Corporate Risks In A Thirsty World, a report issued by JP Morgan Global Equity Research (PDF Here), companies and investors have been quick to identify opportunities to invest in water-related businesses and technologies, but slow to identify the mounting business risks related to pressures on water supply.
What are your company’s business risks relative to water? What about your supply chain? Do you have water conservation and supply contingency plans in place?
The issue of business risk related to water was one of the topics at last week’s Corporate Water Footprinting Conference in San Francisco, California. The two-day conference featured a wide range of subjects such as water conservation, recycling, and risk assessment.
Kathryn Pavlovsky, Principal at Deloitte & Touche, in her presentation titled Global Water Supply Crisis: The Impacts for Business, described how future anticipated water shortages pose a serious threat to businesses that fail to develop water conservation and supply contingency plans in the near term. The overall consensus from the conference was that businesses, especially those in water intensive industries, are at increasing financial risk from global water supply issues. Leaders that fail to plan for risks related to water will ultimately be forced to address them by way of supply disruptions, increased costs, and diminished quality.

Watching Water provides business leaders with a framework for evaluating business risks related to water. The primary areas of risk are: physical (supply reduction or disruption), regulatory (the ability to obtain use or discharge permits) and reputation (public perception of a company’s use of freshwater and creation of wastewater).
Certain industries such as energy, mining, semiconductors, food, and beverages are more water intensive than others and therefore have more risk exposure related to water supply and quality. When assessing business risks related to water, it is critical to consider the difference between process water used in immediate business operations compared with water used throughout the supply chain. A retail clothing chain, for example, may use a relatively small amount of water in their daily business operations. Their supply chain, on the other hand, may be heavily dependent on cotton, a water-intensive crop, grown in regions where water is expected to become increasingly scarce and more costly.
A quick way to assess supply chain risks is to compare a map (PDF link) showing areas of the world where water is scarce with business and supply chain operations. Several tools such as the World Business Council for Sustainable Development’s Global Water Tool and the Global Environmental Management Initiative (GEMI) Water Sustainability Tool are helpful for identifying water use throughout a business and supply chain.
Water scarcity and diminished quality can ultimately result in business losses, higher business costs, and delayed or suppressed growth. According to Watching Water, these impacts can ultimately result in a higher cost of capital.
Many corporations are identifying process water use and conservation as part of their Corporate Social Responsibility (CSR) reporting. These reports tend to focus on a positive, public-relations approach to water use and conservation. On the other hand, companies are reluctant (or unable) to quantify and disclose risks associated with water use through security filings.
The key takeaway from this session on business risk is that business leaders and investors need look beyond water use identified in CSR reports and evaluate business process and supply chain risks throughout the entire value chain of the company.
For more information, see the following resources:
Water Scarcity Poses Threat to Global Business from Pacific Institute
World Business Council for Sustainable Development Global Water Tool
Water Sustainability Tool from GEMI (Global Environmental Management Initiative)
Karen Losee is a Board Member of The Bay Institute of San Francisco, a sales and marketing professional, and an MBA Student at Presidio School of Management. As a native Californian familiar with water supply issues, Ms. Losee is working to combine her professional experience with her business education towards a career in sustainable water management. She is currently developing a strategic plan for a greenhouse gas management organization and is interested in the concept of “water footprinting”.

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