While the debate over climate change continues to rage, most people agree that the era of cheap, easy access to water is over. Estimates suggest demand for water will exceed viable resources by 40% by 2030if we continue business as usual.
Water issues are not, of course, the same the world over; drought in California is mirrored by flooding in Bangladesh. Nor are they limited to these extreme examples.
Brazil, a typically rainy country, has had to implement water rationing, and even Britain has opened a desalination plant to tackle water shortages. But what do companies need to know to adapt to this new era?
1. Water is a source of value
Water has long been a tick box on the corporate social responsibility to-do list, but has now become an operational issue as regulation gets stricter and water starts to hit the bottom line.
Martin Stuchtey, director of the McKinsey Center for Business and Environment, says the value of water goes beyond the cost of sourcing freshwater and disposing of effluents. Water carries heat, chemicals, products and pollutants; its value is derived from what is placed into and removed from it. “You are losing value if you are not recovering nutrients and energy out of your effluents,” he says.
2. Water regulation (or lack of it) poses a major challenge
Policymakers are under pressure to tighten water regulations amid growing concern about scarcity and pollution. China, for one, has established strict water resource management requirements setting mandatory limits on usage, efficiency and quality. Regulations do not, however, always translate into improvements on the ground due to a lack of transparency, difficulty with enforcement and differences between local and national policies.
For business, a weak regulatory regime can be as problematic as a plethora of new rules. The UN’s CEO Water Mandate states: “Regulatory risk is also present when governments are not able to effectively manage their water resources.” It notes that a lack of water quality regulations can cause rampant pollution to the extent that local industries must pay high costs to treat their incoming water before it is suitable for use.
3. Water can destroy a company’s reputation
If companies have water when communities do not, their reputation is at stake and they could lose their so-called social licence to operate, says Hannah Greig, Water Aid’s private sector adviser. Nestlé, has faced major protests for continuing to bottle water in California despite the ongoing drought.
“Perception is as important as reality,” says Greig. “Even if a company is bringing water in by tanker and they are not taking from the community, it doesn’t matter.” Local people will still resent their presence and may choose to obstruct operations.
She says good water management and provision of safe WASH (water, sanitation and hygiene) can help lower this risk. Companies are expected to protect the human right to water and sanitation under the UN’s Guiding Principles on business and human rights. This also makes good business sense, says Greig. “If there is a decrease in water-related diseases you can reduce absenteeism, so there is a more productive workforce. Access to WASH in communities means children and especially girls staying at school longer, so you’ve got a more educated population to draw from.”
4. Sectors need to work together on water management
As California enters its fourth year of crippling drought, competition for water is ramping up. Agriculture, the state’s thirstiest water user, has been exempt from some of the mandatory water cutbacks, sparking outrage in other industries and among the population.
Stuchtey says sectors must work together to manage water more efficiently. “There might be ways that a handshake between the agriculture and industries might provide the better solution. Industrial grey water, if it’s not too contaminated, could in fact be an interesting input into agriculture. We need to go across sectors and manage water in more effective and circular ways.”
5. Business needs to shift to a circular economy for water
At present, water moves through the system getting more and more polluted until it cannot be used again. Instead businesses must see water as part of a circular economy, where it retains its value after each use and eventually returns to the system. Stuchtey says: “We need a completely new mindset of not contaminating water in the first place. We need to treat it like a durable and keep it in closed loops; or like a consumable, but return it in a way so that it is cheap or beneficial to take into second or third use.”
6. Companies need to look beyond their fences
Businesses are increasingly expected to address water management outside of their own operations. Diageo recently set a target to improve its water efficiency by 50% by 2020, against a 2007 baseline, and ensure 100% of wastewater from its operations is returned to the environment safely. Significantly, the company said that these targets will extend to its supply chain for first time. Chief executiveIvan Menezes said: “We know we cannot do this on our own. We will need to collaborate with others, experts in this field, and I encourage our suppliers, partners, customers and others to work with us.”
Coca-Cola, meanwhile, teamed up with the US Department of Agriculture to help restore and protect damaged watersheds around the US last year. While some activists expressed concern that deals like this could result in conflicts of interest, others argue that large corporations must engage in sustainability efforts. Greig says: “An individual business could be the most water-efficient possible, but that doesn’t matter because they are part of a bigger hydrological cycle with other water users, competing demands and different impacts.”
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