Water: a business risk

Date : 11 March 2010

It is inevitable that water will become a business continuity issue for many companies in the future.

This quote from the Earth Policy Institute indicates the seriousness of the water issue

As demand starts to outstrip supply, everyone will need to become more efficient at preserving water. Already, the leading businesses of tomorrow are already embarking on this journey.

Water scarcity will rise to between 50-65% by 2025, according to the United Nations. Population growth, increasing consumption and climate change are among the factors that threaten to exacerbate this problem, with serious implications for human security and development.

Food and water

The UK government recently published its new food strategy – Food 2030 – which ‘sets out the government’s vision for a sustainable and secure food system’. The strategy highlights the significant impact of the food industry on water consumption within the UK. It identifies that: "The food system is a major water user, taking 10% of all industrial abstractions and another 10% of total industrial water from the public supply."

Risk to reputation

The strategy goes on to recognise that the UK’s food supply chain can have a significant impact on water reserves overseas. According to Food 2030, 62% of water needed to produce goods consumed in the UK comes in the form of embedded water in imported agricultural and industrial goods.

Typical products imported by the UK, such as coffee and cotton are water-intensive, carrying a large amount of embedded water, and it is likely that some of these products come from water-scarce regions overseas.

Importing goods from these areas is likely to become an even greater issue in the future, as competition for this natural resource increases and the way in which businesses use water comes under greater public scrutiny. This in turn could have a knock-on effect for business continuity and reputation.

It will therefore become increasingly important for companies to strike the right balance between the economic benefits of trade, and the long-term environmental impacts and social ramifications of operating in water scarce regions of the world.

Public and media scrutiny

There have already been public campaigns and national press coverage about the impact and amount of water used by drinks manufacturers, the cut-flower industry and the strawberry industry, all operating in water-scarce regions in the world.

With increased public scrutiny, businesses must be mindful of how responsibly they use waterLeading financial services firms have reported that when public scrutiny translates into public campaigning, companies face business risks, especially those who are deemed wasteful or irresponsible.

The Economist reported in September 2008 that just five of our major food and beverage companies consume about 575 billion litres of water a year, enough to satisfy the daily water needs of every person on Earth.

Institutional investors are increasingly seeking information from companies on how they are addressing, managing and even reporting water risk and opportunities. At the beginning of February 2010, Ceres - a coalition of investors, environmental groups and other public interest bodies - launched a report with UBS and Bloomberg about corporate reporting on water risk. According to a WWF report, PwC advises its clients to consider environmental risk as a ‘portfolio issue… in the light of public and media vigilance’.

At the end of 2009, the Carbon Disclosure Project (CDP) launched a new investor-driven water disclosure initiative backed by the UK government, European and U.S. investors focusing on approximately 300 of the world’s largest companies in sectors that are water-intensive or face a particular water-related risk. These include fast moving consumer goods and food and beverage. (Facts on the CDP Water Disclosure initiative can be found here).

"I welcome the Carbon Disclosure Project’s initiative to raise awareness of the importance of water and the opportunities there are to improve water management. I am sure that as with carbon disclosure this will help us to understand water usage and as a consequence value this precious resource. "

Hilary Benn, UK Secretary of State for Environment, Food and Rural Affairs

Reporting – measuring to manage

IGD has created a list of water organisationsReporting a company’s water usage will help businesses understand how to reduce their impact in the long-term, and will be essential when ‘hot spotting’ and addressing the issues.

Understanding and being aware of the water challenges that a company faces will undoubtedly allow them to make better management decisions and provides a platform to engage with a broader set of stakeholders, addressing issues outside their direct sphere of influence.

Businesses can play an important role in improving the management of water supplies and reduce their impact on biodiversity and society. Companies must ensure that their own operations make efficient use of water, and they will need to start understanding and addressing the issue of water use throughout the supply chain.


Raising awareness of water as a major sustainability issue

Although awareness of the importance of water is increasing, the level of knowledge and engagement on this issue is fragmented and incomplete.

In response to this, IGD has undertaken some work to signpost the wide range of activities and organisations that are relevant to the many aspects of water in the food and grocery supply chain.

Click on the following link to request this free document:

Water in your Supply Chain - An introduction and Directory of Organisations 

Please note, apart from one or two very limited examples for illustration, we have not included the many commercial organisations that sell and promote an extensive range of products or services to manage water.