Water World: The Business Case for Water Efficiency — and the Risks of Ignoring It

The world’s freshwater supply is at risk and the question is when and where, not whether, there will be major droughts or shortages that could have a major disruptive effect on business and society. By Joel Makower

The connections between the business world and the world’s water supply have gained increased attention lately, with a spate of new reports and news stories. Everyone from the United Nations to state and local governments are getting involved, and the conclusions for water-intensive companies — and even less-intensive ones — are implicit, if not explicit: The world’s freshwater supply is at risk and the question is when and where, not whether, there will be major droughts or shortages that could have a major disruptive effect on business and society.

The conversation reached a high-water mark in recent weeks with the publication of two major reports on the subject. One, titled “Risks of Water Scarcity: A Business Risk for Financial Institutions,” from the United Nations Environment Program Finance Initiative, focuses on the “potential risks associated with water scarcity” as “an emerging risk of strategic importance to businesses and their financial backers around the world.” It illuminates the need “to learn and expand on the issues that arise from dealing with water scarcity and highlight opportunities for the financial sector for contributing to sustainable development through active engagement in mitigating water related risks at different levels.”

The other report, “Freshwater Resources: Managing the Risks Facing the Private Sector,” from the Pacific Institute, a sustainable development think tank, targets corporations and institutional investors. It begins by acknowledging “a growing understanding of the complex interconnections between water and almost every other major issue of the day, including energy, climate, economic development, environmental health, and peace and security.”

In some cases, says the report, water-related problems will lead to decreases in water allotments, more stringent water- quality regulations, growing community activism, and increased public scrutiny of water- related corporate activities. These may impact site selection, license to operate, productivity, costs, revenues, and, ultimately, profits and corporate viability.

Concludes the Pacific Institute: “Water-related risks now pose a potential multibillion-dollar threat to a wide variety of businesses and investors.”

Meanwhile, as if to underscore these reports’ messages, the stream of water-related headlines has remained steady.

Three examples from just the past few weeks: “One Billion People Still Drink Unsafe Water,” reported UNICEF, the United Nation’s children’s fund, adding that diarrhea kills some 1.8 million people each year, most of them children under five. “Seas Only Hope for World Water Supply, Says Spain,” whose newly installed government unveiled a major program to fight its chronic freshwater shortages, including a new scheme in which water will be priced according to its intended use: farmers will pay the lowest charges, with industry paying a little more, and tourist facilities and golf courses paying the most. And, perhaps most ominously: “Texas Group Seeks $500 Million from Mexico over Water Shared in Rio Grande Valley,” in which a group of farmers is seeking reparations for crop loss and other damages the group claims were caused by Mexico’s failure to comply with a water-sharing treaty — possibly the first U.S.-transnational water war — fought, in this case, in the courts.

Supply or Demand?

From where will the solutions come to address these pressing challenges?

Some of it will come from continued infrastructure development, the roughly $90 billion spent annually around the world by governments, water utilities, and private companies. But, says George Carpenter, Director, Corporate Sustainable Development at Procter & Gamble, another $25 billion a year is needed to meet the United Nations’ Millennium Development Goals, which, among other things, call for reducing by half the proportion of people without sustainable access to safe drinking water by 2015.

Help also will come from venture capitalists, which are beginning to see water filtration, desalination, and delivery mechanisms as areas ripe for innovation and investment. But those investments are relatively small — for example, Aqua International Partners, a $232 million investment fund co-founded by former U.S. EPA head William Reilly — and their payoffs can take a decade or more.

There may be action from regulators, who are coming to understand that water issues, while serious themselves, are tied to energy challenges. This was brought home recently in a report from the Natural Resources Defense Council, ”Energy Down the Drain,” which shows how water conservation “saves energy, cuts electricity bills, and reduces pollution from power plants.”

In the end, the solutions may come less from the supply side — creating more fresh water — than from the demand side: large water users making the difference in the form of increased conservation, reuse, or closed-loop processes that maximize scarce water resources.

Toward that end, companies should expect to find water issues rising to the level of awareness that energy conservation and efficiency has seen in recent years. The good news is that companies that already have implemented comprehensive energy efficiency and management systems will have a jump on those that haven’t. Addressing both energy and water involve extremely similar processes: conducting audits and establishing a current baseline; identifying cost-effective, low-hanging fruit for making efficiency improvements; generating organizational awareness of the issue through effective communication and training; getting top-level buy-in to tackle the bigger, longer-term, and more challenging issues, such as water-intensive manufacturing processes; engaging suppliers, activists, and other stakeholders; measuring and reporting; and on and on. You know the drill.

And along the way, some leadership companies will establish themselves with innovative technologies and practices, smart and effective partnerships, and new business models and opportunities.

Rising to the Top

In fact, some of those leaders already have emerged. On its Water Sustainability Tool Web site, the Global Environmental Management Initiative offers a score of case studies involving its member companies: How Abbott Laboratories helped upgrade Puerto Rico’s inadequate drinking water system; how DuPont developed a wetlands water recovery system to replace its use of deep-well injection in disposing of wastewater in Texas; how Anheuser-Busch engaged multiple parts of the company in developing and implementing its water strategy; how Novartis harnessed employee education to produce water-management solutions that yielded significant returns. And others.

Increasingly, such stories will likely be expected of companies as water issues bubble to the surface. Unlike climate issues, where problems and their solutions have global impacts, water will be seen as a mostly local issue requiring local actions. But, if as experts predict, warmer climates and lowered water tables lead to widespread disruptions, activists and regulators will begin to connect the dots, foisting regulations or global treaties upon the business community. And what seemed like a trickle of interest could turn into a flood.

Even before that happens, shareholder activists will be chiming in — they have already — inquiring about what companies are doing to mitigate the risks of doing business in a world where access to water is a constraint. Everyone, in short, will be seeking answers.

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This article has been reprinted courtesy of the Green Business Letter. It first appeared in the September 2004 issue of that publication.