GreenBiz.com: 6 Ways Companies Can Address Their Water Scarcity Risks
As the world starts to wake up to the reality of looming water shortages, companies, investors and other stakeholders care about the risks posed to business from water scarcity. As a result, companies are measuring their water footprint -- direct water use and increasingly indirect water use in their value chain. They are also beginning to develop an understanding of the geographic distribution of water scarcity risk.
In understanding water accounting we must first explore: what comprises water risk; why does water accounting include both footprinting and risk mapping and why the interest in water accounting?
First, water scarcity risk is characterized as:
- Physical (the availability of water);
- Reputational (potential impact to brand value); and
- Regulatory (current and potential water quantity and quality regulations).
These risk factors typically translate into real business issues such as business continuity, social license to operate and brand value.
Next, why water footprinting and risk mapping? Water footprinting provides information on water use -- direct and indirect across a value chain. However, the location (timing and quality) of water use is essential in understanding water scarcity risk and impacts to businesses.
It is important to understand that carbon accounting methods do not translate well to water use and water risk mapping -- carbon is fungible and water is not. As a result when companies develop a global water strategy it must be translated to the local level (the watershed) for effective implementation.
Finally, why the relatively recent focus on water scarcity risk to businesses? One of the key drivers is investor interest (other stakeholders are also increasingly focused on water scarcity and how businesses address this issue).
Three recent water reports illustrate investor interest in the impact of water scarcity to brand value and business operations.
- "A drought in your portfolio: are global companies responding to water scarcity?" A Water Risk Report from June 2011 by EIRIS;
Also, watch the Carbon Disclosure Project Water Disclosure initiative for insight as to how companies are addressing water risk and opportunities. This program is in its second year and the results from the 2011 survey are expected in November.
How to Dive in to Water Footprinting
So how does a company measure its water footprint and water risk? It is important to keep in mind that water accounting is in the early stages of development and there is no shortage of approaches. A good place to start in understanding the tools available is with "Corporate Water Accounting: An Analysis of Methods and Tools for Measuring Water Use and Its Impacts" by the United Nations Environment Program and The CEO Water Mandate. The report examined publicly available methodologies and did not focus on proprietary tools.
Currently, water footprinting tools generally fall into the following initiatives:
- The Water Footprint Network methodology. The Water Footprint Network is a non-profit foundation and was part of an effort to develop the "Global Water Footprint Standard." This water footprinting methodology was developed through a joint effort of the Water Footprint Network, its 130 partners, and scientists of the University of Twente in the Netherlands.
- Life Cycle Assessments. An LCA is an approach to evaluate environmental impacts for all the stages of a product's life from-cradle-to-grave (i.e., from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling).
- ISO methodology. This method is still under consideration for development by ISO.
Currently, water risk mapping tools include:
- World Business Council for Sustainable Development Global Water Tool. The World Business Council for Sustainable Development. WBCSD is a global association of about 200 companies focused on addressing sustainable development issues. The "Global Water Tool" is used by companies to map water use and assess risks relative to their global operations and supply chains.
- GEMI Water Sustainability Tool. GEMI is an organization of companies dedicated to fostering global environmental, health and safety (EHS) and sustainability excellence through the sharing of tools and information. The "Water Sustainability Tool" is designed to assist individual companies to better understand emerging water issues and support the development of a water strategy.
- Aqueduct Tool. The Aqueduct Tool is currently under development by the World Resources Institute in partnership with GE and Goldman Sachs. It is a suite of tools that helps to understand, manage, and mitigate water risk.
Also, there are several other industry specific water risk mapping initiatives under way in addition to the water footprinting and water risk mapping tools reviewed in the report.
Challenges to Overcome in Maturing Water Accounting
As water accounting is in its early stages of development there are several areas for continued development. Briefly, they include:
- Terminology confusion -- terminology between tools and industry sectors are inconsistent.
- Shift to external factors -- need for increased focus on external factors such as stakeholders and watershed issues.
- Lack of harmonization -- need for increased linkages between tools and initiatives.
- Supply chain issues are underemphasized -- need to expand understanding of water use and risk in the entire value chain.
- Inadequate data -- the need for detailed and accurate water data.
- The energy/carbon/water nexus -- currently only a general understanding of the linkage between energy, carbon and water use and how to effectively manage these issues.
Despite these challenges companies are using current tools to develop an understanding of their water footprint and potential water risk. An example of the effective use of current water accounting tools (the Water Footprint network methodology) is from the SABMiller 2009 report, Water Footprinting: Identifying and Addressing Water Risks in the Value Chain. The water footprinting evaluation examined water use in the production of SABMiller products from The Czech Republic and South Africa.
According to Andy Wales, Group Head of Sustainable Development at SABMiller plc, "The methodology was useful as it identified specific risk intervention points in managing water risk. Moreover, the methodology was quick and effective and will be expanded to other areas of operations and products."
Getting Started with Water Accounting
So how do businesses address water accounting? I recommend the following:
- Start with water footprinting and water risk mapping tools that are publicly available. Water risk mapping tools that are publicly available are transparent and typically widely applied. If needed, these tools can be supplemented with company-specific tools to meet specific internal planning requirements.
- Evaluate how the water use and risk mapping information will be used -- internal business strategy and/or reporting/disclosure. If the water use and risk mapping initially will be used for internal business strategy purposes, also consider future uses of the information -- it may well be used ultimately for reporting purposes and you may also want to consider having the data independently verified.
- Calculate enterprise water footprint -- direct water use and value chain. Determine not only direct water use but water use across the entire value chain. This would include consumer use along with source inputs (agricultural). For most companies the largest water footprint resides within their value chain and as a result the entire value chain water footprint will provide the more comprehensive view of current and potential risk and opportunities.
- Water risk mapping. Water risk consists of physical, regulatory and reputational aspects. All of these components of water risk are dependent on geographic location -- the watershed. As a result water use should be mapped within individual watersheds. Risk mapping at the watershed level will help in developing site-specific water reduction goals, risk mitigation strategies and stakeholder engagement strategies.
- Consider water footprinting for products to understand water use and specific operational areas for reducing water use and water risk. Product water footprinting coupled with enterprise wide water footprinting (direct and indirect use) and risk mapping is a robust approach to developing a view of current and potential water-related risks. Product water footprinting provides insight on process-related water use to support efficiency improvements.
- Think about business opportunities and innovation. Increased competition for water is driving innovation (check out ImagineH2O.org. Companies are developing new technologies in the water industry: to acquire water use and water quality data; water treatment, waste to energy, leak detection and desalination.
Companies that can sustain or grow their global business while challenged by increased competition for water can have a competitive advantage when compared to those business that can't.