5 Steps to Mitigate Water Risk and Manage Water Resources

Last month in Davos the World Economic Forum (WEF) recognized water scarcity as “the second most important risk facing the world in the years ahead.” Yet, the latest MIT/BCG study, shows that in a list of sustainability trends executives find most crucial for their companies in the next 3 years, water scarcity is almost at the bottom of the list.

This is a reflection of the current state of water – it’s one of the main risks for business and might be among the first companies will need to address, but at the same time most businesses don’t have a real sense of urgency about it. At best they acknowledge this risk to some degree or takes some incremental steps to reduce its exposure.

Yet, this sort of response needs to be changed and quickly, explains Ernst & Young (E&Y) in a paper entitled ‘Water resources at the corporate level – moving from a risk-based approach to active management.’ The paper offers key steps that companies should start taking to move to the next level – managing water risks and as well as adopting a much more holistic water management approach.

The conditions that impact water risks are probably well-known to business – from rising population and demand to water quality degradation and extreme weather patterns. What business might be less aware off is the urgency of the situation – according to the Carbon Disclosure Project, “demand for water is projected to outstrip supply by a staggering 40 percent by 2030, and an estimated half the world’s population are likely to live in areas of high water stress by the same year.”

Climate change might make the clock tick even faster for companies. “The impact of changing climate on water availability and quality is in many regions and immediate tangible and local risks,” the Water Environment Federation says on KPMG’s Expect the Unexpected report. It means that it probably won’t take too much time before companies start facing one or more of the risks that are associated with water scarcity: strategic, compliance, operational, financial and reputational. Any combination of these risks can become a substantial threat to the continuation of business.

Yet, at least for now, it doesn’t seem like most companies are too worried about it (see for example the ranking of water on the MIT/BCG study list of crucial trends). Even investors don’t seem to be worried for now – a 2011 E&Y/GreenBiz study found that water was ranked in the 10^th place among topics that CEOs are asked about by their investors and shareholders.

There are various reasons why business doesn’t address water scarcity so far as an urgent matter (although we should say that water-intensive industries are somewhat more aware than others), namely, costs and regulations have not changed substantially. Yet, most businesses are vulnerable to water risks whether they see it or not. Therefore it doesn't hurt to look at the five steps E&Y offers, aiming to mitigate water risk and to better manage the water resources:

1. Develop a corporate water policy: This should be an organization-wide, publicly available policy on water that sets out clear goals and guidelines for action.

2. Understand the current state of water risks at the watershed level: It is important to understand the risks relevant to specific watersheds, categorize them and measure their potential impacts on operations.

3. Understand the business’s water footprint, both locally and across the value chain: This is the best way to take a holistic view of water use and discharge impacting the company’s products or operations.

4. Engage internally at the facility or corporate level and externally with local stakeholders to evaluate the risks and impacts: Applying innovative technologies and educating one's own facilities are key to realizing efficiencies and mitigating risks.

5. Report externally and seek independent assurance: Transparent reporting enhances a business’s ability to understand water risks, impacts and opportunities.

Other recommendations E&Y includes in the paper are: make the business case to invest in water management, think long-term, move beyond compliance-oriented strategies on water management and rigorously measure and manage data specific to water use, quality, discharge in own facilities and across the supply chain.

The bottom line is very clear here – first, companies will need to adopt a more holistic water management approach. Second, there’s going to be a need in a collaborative effort that will include companies, local governments, NGOs and other stakeholders as no company can do it all alone.

It will be interesting to see when companies start taking this advice more seriously. It looks like there’s a good chance that those who will delay their preparations on this issue and won’t do it in a strategically manner will be at a disadvantage eventually. The only question is how much time it will take business to understand it.

[Image credit: Ernst & Young]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.