Hydro Logic: A Crucial Tool to Help Companies Address Water Risk
Originally Posted on Environmental Defense Fund's EDF+Business Blog.
Water bills make up a tiny fraction of operating costs even for companies that use vast amounts of the stuff, and ample supplies have traditionally been taken for granted. But, in many areas of the United States and around the world, fresh water is becoming increasingly scarce, polluted and contested.
According to a recent study led by McKinsey, the world may face a 40 percent shortfall between forecast global water demand and available supplies by 2030. In this high-risk environment, companies with water-intensive operations and supply chains – energy, mining, manufacturing, food and beverage, electric power – have the most at stake.
Some in the business world are starting to realize this, with companies from Levi Strauss to PepsiCo to IBM acknowledging the challenge and seizing the opportunity to act. Institutional investors including the Norwegian sovereign wealth fund and the California State Teacher’s Retirement System are also taking on the issue, asking companies in their investment portfolios to better manage water risks.
To create real, large scale, lasting change, however, these organizations need tools to plan, track and measure success. To help companies and shareholders like these create real, lasting change on a larger scale, Ceres and the World Business Council for Sustainable Development recently released a new roadmap for 21st century corporate water management, the Ceres Aqua Gauge. It’s a practical (and free) self-assessment tool that outlines detailed steps for effective water risk management, from the boardroom to the factory floor to the farm field.
The Aqua Gauge is the result of extensive interviews with leading companies and NGOs and is backed by investors managing $2 trillion in assets. It emphasizes a strategic approach to water risk, and highlights some of the companies that are leading the way in 21st century water management. These exemplars are:
- Establishing responsibility and creating incentives at the top. Water poses risks and opportunities that merit board-level oversight and integration into executive compensation. In a recent study by Ceres and Sustainalytics, 170 out of 600 U.S. companies assessed had some degree of board level oversight for sustainability, including on water issues. And a growing number of firms, including Campbell Soup and Danone are tying water and other sustainability metrics to how executives are compensated.
- Improving water performance in the supply chain. Companies should set standards for performance improvement with critical suppliers. Nike, for example, set a goal to work with its footwear and textile suppliers to achieve a 15 percent improvement in water use per unit of production by 2015. The company has also implemented water quality guidelines for its suppliers and has committed to working with industry to achieve zero discharge of hazardous chemicals anywhere in its supply chain by 2020.
- Addressing water risks “beyond the fenceline.” Companies that depend on ample clean water for their operations are working with stakeholders and communities to support collective efforts to protect or restore their water source. Greg Koch, the Coca-Cola Company’s Global Director of Water Stewardship, discussed these efforts at the Ceres Conference in late April in Boston. “Our company is the canary in the coal mine of water risk,” said Koch. “Ninety-nine percent of our volume is produced in the markets where our plants are located, but it’s not enough for us to say we need water for our [bottling] plants. We have to engage the community and be a part of their water issues and solutions.”
For Coke, this means not only reducing its own water use inside more than 900 of its own bottling plants, but also requiring its bottlers to develop concrete plans that routinely include engagement with local water agencies, communities, and other outside partners to address local water challenges.
Coke is also using the Aqua Gauge to advance its own water management and to encourage its suppliers and customers to do the same.
“Water is complex. It’s both local and global. We use Aqua Gauge to communicate where we are on the maturity continuum of water stewardship,” Koch said. “It helps us to take some of the mystery out of the steps we can take to support better water management.”
These examples of engaged water management remind us that fresh water is much more than a budget line item. Its value is far greater. By looking at the cost of water alone, companies might ignore the very real risks of business disruption from a lack of clean water, or the increased capital costs of replacing it.
Aqua Gauge and other tools are enabling companies to take action on water management, no matter what today’s “price at the pump” may read.
Read more on Environmental Defense Fund's EDF+Business Blog.