Claiming the global risk of water insecurity as a strategic opportunity for your company
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Business is impossible without water. It is essential to almost every product and service our society relies on. By the same token, water is a risk to business. Water insecurity can cause rising material costs, disruptions in the supply chain, increased competition, and regional conflict. As the global population grows and the effects of climate change become evermore pronounced, water insecurity and overall water quality is guaranteed to become a persistent challenge for business.
The term “water insecurity” refers to the unreliability of a water resource including for example, a flood or a drought; it is also demand that exceeds supply or water that has been polluted. Climate change, population growth and changes in socio-economic status are exacerbating the standard deviation of unpredictability in the water cycle and poses new, urgent risks to be considered by the business community (Doell, 2008).
Businesses that want to succeed in the long run need to take water insecurity seriously by becoming proactive in their water resource management to ensure long-term success and profitability. An overarching corporate water strategy is key to successfully dealing with water insecurity. This strategy must be sufficiently flexible to meet local water needs for each business unit and every level of staff should participate in its execution to raise the likelihood of success. Staff engagement can be a difficult task to accomplish and the unconditional support of senior management in the communication and implementation of a global water strategy is considered the only way to achieve company-wide implementation.
A water strategy that sets targets for real reductions in supply chain and internal water use will generate cost savings and create indirect benefits for numerous stakeholders
A water strategy that sets targets for real reductions in supply chain and internal water use will generate cost savings and create indirect benefits for numerous stakeholders. Such a strategy can even bring about spin off benefits for the environment and the company by reducing greenhouse gas emissions and providing increased water availability for the local community.
Companies acting proactively on water management have the opportunity to gain a first mover advantage on the competition. While sourcing water is a primary concern for many leading corporations, there currently exists a huge lack of awareness as to the risk of water insecurity in the business world. Water costs are expected to rise in almost every region of the world and growing demands from many different stakeholders will likely render the amount of water available to business smaller and harder to obtain. Additionally, with more people seeking out the same water source, the mismanaged increase in domestic and commercial use will lead to a rise in water pollution, reducing the overall quality of water available. Smart managers can seize this market opportunity to become leaner companies and be best prepared to deal with tightening government regulations and changing consumer interests. A strong water management plan is now necessary for all companies, even those that are only indirectly exposed to water risk. Companies that take a holistic and strategic approach to water management will minimize the risk of future disruptions to their business operations, and maximize their future profit potential.
Water insecurity and the risk to every business
Global water models show strong trends in currently semi-arid regions of the world such as Australia, southern Africa, Central America, the Caribbean, south-western South America, south-western United States, and the Mediterranean seeing increased frequency of droughts and water scarcity over the next 50-100 years (IPCC 4, 2008). In some areas this trend is already apparent; the devastating fires of January 2009 in Australia were just one indicator of a regional drying trend already underway. Businesses that operate in semi-arid regions or rely on agricultural suppliers from these regions will be at an increased risk of water shortages causing disruptions to their operations including: higher costs, gaps in the supply chain, and political unrest as local populations are challenged to meet their basic water needs.
The water cycle is a closed system limited by the confines of the Earth; therefore, when there is a drought in one region, water does not disappear; it relocates to other parts of the world, often to where it is not wanted. For instance, climate change is expected to increase flood risk to almost all river systems around the world. Once every hundred–year floods are expected to increase in frequency to once every fifty years or less (IPCC 4, 2008). Businesses with facilities located on floodplains, river banks and along low lying coast lines need to consider this increased flood risk in their site selection, site design, and insurance costs.
Flash floods risk damaging business infrastructure, halting business operations, increasing costs for prevention, and pose a high risk for cities and companies that treat their facility effluents. Flooding has the potential to overflow unprepared effluent storage and collection systems, posing an environmental risk to municipalities and ecosystems as well as creating a liability for local companies.
Socio–economic changes in the global population also poses a risk to water supply for business. Historical trends show that as a country develops, its per capita use of water increases (FAO, 2008). With economies still growing strong in Brazil, India and China, daily direct water use increases with the changing demographics, as more people buy products like washing machines, use more electricity, and change their diets. The increased water use will pose a risk to companies operating in these emerging economies or relying on suppliers that operate there. A company’s direct access to water may be reduced by resource competition and indirectly electricity and material costs may increase.
Previously, industries concerned with water insecurity were the heavily water dependent sectors, these included: manufacturing, food and beverages, utilities, metals and mining, and the agricultural industry. Several companies in these industries have come a long way in water management practices over the past thirty years as a result of incorporating water risk as a top line decision point. Sector leaders have significantly developed their water management strategy, especially in the past decade, as new scientific studies highlighting an increased likelihood of water–related risks have emerged.
Increasing competition for water resources between business and civil usage holds the potential for significant damage to the reputation and growth prospects of water-dependent companies. If a company is perceived to be getting in the way of local water supply, backlash from the community could tarnish a company’s name. Multinational companies are particularly at risk because of their high profile (Levison, 2008). Increased costs and potential litigation measures are just two factors that need to be considered as competition for water grows.
Turning risk into opportunity through water stewardship
Understanding the business risks and opportunities surrounding water insecurity can help companies to plan for success in the long-term. All businesses have a choice, to lead the pack and gain the rewards of making the first move, or to follow and make change at a large cost only when yielding to public outcry, the government enacts legislation, or when water insecurity disrupts operations.
Increasing competition for water resources between business and civil usage holds the potential for significant damage to the reputation and growth prospects of water-dependent companies.
The business opportunities in water stewardship are broad and far-reaching so much so it can even seem like there are too many options and no clear place to start. Similar to a company’s approach to climate change, an overarching, holistic company water plan should be established first. However, from a management perspective, water management and carbon management differ from this point onwards. Water insecurity is essentially a local concern while greenhouse gas emissions are a global concern. One tonne of carbon avoided anywhere in company operations is considered a good thing. In contrast, one litre of water saved by the company in the Sahara is much more valuable than a litre of water saved in Norway.
Beating water insecurity risk means firstly, measuring, monitoring, and reporting the company’s water management strategy so that areas to improve can be identified, tracked, and ultimately celebrated. Effective measurement and reporting of water use is the best way to bring the topic of water management onto the company agenda, setting reduction targets on a short and medium term time scale will create employee engagement, healthy competition, and drive innovation.
Tackling water risk from the inside–out is the right first step for company water stewardship measures. This approach is the easiest to implement and it builds the employee buy–in necessary for external campaigns. Water conservation efforts lead to cost reductions in the short–term and risk avoidance in the long–term. In addition, water efficiency means energy efficiency for companies, leading to another benefit of reduced greenhouse gas emissions. Offices can be made more water efficient, for example, through the installation of low flush toilets, sensor taps, and rainwater collection units. Facilities can be designed or renovated to recycle polluted water, reuse water again in closed loop processes and run on less, and staff can be empowered to become water stewards.
Employees who see their company striving to be a leader in water stewardship will hold their employer in higher regard. Being a responsible company that takes water stewardship measures seriously will bolster staff pride and build a passion for success. This new respect for the company will lead to higher employee productivity and better retention of talented staff. Good water stewardship measures can also increase overall the attractiveness of the company to potential hires and reduce recruiting costs. Operational cost savings can be realized when the employees on the ground understand that their employer is moving in the direction of responsible water management. Front-line employees have the best understanding of where company inefficiencies lie and, when given the opportunity, will come up with innovative solutions to resolve it (Willard, 2002).
Strategically, companies need to focus on business units located in regions with higher instances of water insecurity and/or on operations that have been traditionally water–intensive. After company experts have highlighted “hotspots” and senior management has prioritized target areas, water development measures can be implemented. Company profits can be increased through active and transparent water stewardship. Stakeholders including the local community and customers develop a stronger brand loyalty to responsible companies. Effectively communicated water efficiency measures and water stewardship programmes undertaken with local communities can build this brand loyalty, creating new customers, partners, and minimizing future conflicts. Companies that have shown a history of responsible water management are also offered new business ventures not otherwise possible.
What is your competition doing? Insight and Recommendations
Leading companies, like Coca–Cola, SAB Miller and Rio Tinto, are showing that water insecurity can be combated in a smart, collaborative fashion that improves their value in the financial, social, and environmental spheres. These industry leaders have come a long way in their water management practices over the past thirty years as a result of incorporating water risk as a top line decision point. Now is the time for all companies to give themselves a competitive advantage as an early mover on this increasingly likely threat to business–as–usual. By developing a robust global water strategy with implementable and measurable actions, companies can be best placed to deal with future water insecurity, and the challenge of doing more with less.
The most successful water strategy will be flexible enough to allow unique challenges around the world to be addressed by local experts, and at the same time, be clear enough in its mission that all employees can understand and apply it. Leadership will be necessary to make this possible and ensure that strong ideas put on paper get embedded into on the ground operations. Making internal water conservation a priority is the first step of any corporate water management strategy. Companies should focus on their closest spheres of influence as they tackle water insecurity. As internal improvements progress, the company supply chain must then be addressed: often water impacts are higher in the company supply chains than at internally and can yield many water saving opportunities. Local communities in the neighbourhood of company facilities offer an opportunity to positively engage with stakeholders while progressing a water management strategy.
Several organisations have appeared in recent years to support companies transitioning to a more responsible water management position. The World Business Council for Sustainable Development, World Wildlife Fund, and the Water Footprint Network are all highly regarded for their expertise in negotiating the needs of water and business. These organisations provide support in developing and implementing water strategies, create a space for dialogue between company aspirations and local community concerns, and provide tools to better manage and measure water in business operations. In conclusion, addressing water insecurity today makes long-term business sense. Companies need to be prepared to react to a changing global demand for and allocation of water, and be aware that future water insecurity may dwarf the current global concerns for climate change. Water intensive industries, like agribusiness and mining, have cut a path for other industries that have not yet considered the risk water insecurity poses to their operations. While awareness rates are still low in companies that do not directly use much water, like publishing or the service industries, the societal and financial impacts here will still be significant and could prove very costly or worse for the unprepared business. Starting the conversation in your business as soon as possible is the best strategy for success. Business in all sectors can negotiate the challenges of water insecurity with a holistic and transparent water management strategy that measures progress, includes all employees and establishes community partners.
For an in–depth review of Water and Business Ethics, Footprinting, and Supply Security, please contact the Ethical Corporation Research Institute.
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