Water is arguably the most essential natural resource on our planet, not only for humans, but for the ecosystems and climates upon which our global systems rely. With a growing population and an increasingly unpredictable climate, water stress and therefore, water risk, is inevitably making water stewardship critical to businesses across the world. Companies operating in agriculture, beverage, textiles, retail, and energy industries should expect water to be one of the most material issues relevant to their futures due to their impact and dependency on it. In this post, we’ll explain why water stewardship is important to any company’s sustainability strategy and provide important considerations for strategizing and implementing a holistic water program within your organization.
What is Water Stress and Why Does it Matter?
Water stress is defined as an area/region where water demand is greater than supply. Today more than 2 billion people depend on river basins in water-stressed areas/regions and, according to the 2022 UN World Water Development Report, that number is expected to more than double to 5 billion by 2050.
While we tend to associate water stress with freshwater scarcity, we cannot forget that access to water, sanitation & hygiene (WASH), biodiversity degradation, water quality, and flooding also contribute to the global water crisis. Additionally, the shifting climate exacerbates water issues, primarily because climate change induces so much uncertainty to water supply reliability. As temperatures rise, snow will melt earlier and faster, which can cause flooding. Additionally, longer, hotter seasons, in turn, increase risk of drought and dwindling water supplies. Thus, the climate-water nexus is crucial to understand and act on.
How to Create a Holistic & Effective Water Strategy
- Understanding Water Materiality and the Nature of Water Challenges
Water challenges are often conceptualized as a quantity or quality issue. However, there are other challenges of equal importance that must be considered when assessing your company’s overall risk. Water challenges can be broken into seven key issues (each defined by desired conditions for low risk):
Of these seven key challenges, it is important to understand that, what may be material to one business can differ drastically from another, even within the same industry. This is largely due to water, by its nature, being a hyper-local resource.
Because water challenges are highly localized, the degree of challenges depends on various basin-specific factors, such as precipitation, infrastructure, and the number or type of primary water users for that basin. As a result, there is no “one-size” fits all solution. The unique attribution of water as a localized natural resource underpins the importance of collective action among all water users and explicit consideration for the needs of that specific river basin’s context. By performing a materiality analysis, a company can identify which of the seven water challenges are most pertinent to its business, ensuring that its water stewardship efforts are impactful and sustainable.
- Assessing Water Materiality & Overall Risk
Water challenges are often conceptualized as a quantity or quality issue. However, there are other challenges of equal importance that must be considered when assessing your company’s overall risk. Performing a comprehensive water risk assessment is the first step in understanding which challenges are most material to your business. This risk assessment can be separated into two parts:
Both basin and operational risk can be understood in the context of the seven material challenges by linking key metrics to each of the water-related challenges.
EXAMPLE: A company’s Ecosystem Service Status at each of their sites is a key indicator that links to the severity of their Freshwater Biodiversity challenge. A manufacturing company with sites that consume water from – or discharge water into – the Amazon Basin, may have a much higher Freshwater Biodiversity risk than a manufacturing company with sites in California. However, the sites in California will likely have a much higher risk of droughts linked to the challenge of Extreme Weather Events. Thus, water contextuality and water materiality must be considered in parallel in order to effectively determine a company’s overall water risk.
Finally, key metrics associated with each water challenge can be given specific scores by leveraging aggregated data from tools such as the World Wildlife Fund (WWF) Risk Filter and World Resource Institute’s (WRI) Aqueduct. Per site, companies are encouraged to assess their current state, dependencies, and overall impact/influence in order to prioritize material water challenges and identify risks most relevant to address moving forward.
- Setting Site-Level Targets that Match Water Challenge’s Necessary Ambitions
Once a company understands its most relevant challenges and water risks, setting a target is the next step. The ambition of the target should reflect that of the level of the company’s current state, impacts, and dependencies related to the specific water challenge.
EXAMPLE: If a company finds that Water Quality and Climate Resiliency are its primary water challenges, next steps should include locating the sites that are contributing to those risks and then developing action plans, targets, and monitoring programs to address them and mitigate associated risk.
Targets can vary depending on the maturity of a company’s water stewardship program. For example, a company with a mature program, might set a Water Quality Target that limits the total maximum daily load discharges for nitrogen and phosphorous. In contrast, a company still in the early stages of its water stewardship program might focus on developing a SMART (specific, measurable, achievable, relevant, and time-bound) goal to reduce wastewater discharge into local river basins by: 1) prioritizing data collection and monitoring, and; 2) collaborating with regulators, facility managers, local community members, and water experts. To that end, stakeholder engagement and consensus building is key to maximizing buy-in and leveraging on-the-ground expertise as a way of ensuring longevity and effectiveness of a water program.
- Rolling Site-Level Targets into Company-Wide Targets & Developing an Achievement Roadmap
Once the highest risk sites have achievable targets in place, site-level targets should be aggregated to a company-wide target and/or incorporated into a water stewardship strategy. Identifying key levers to address risks and linking them to the company’s financing mechanisms and investment decisions create the foundation for a successful, action-oriented corporate water program.
EXAMPLE: For example, if a company identifies that Water Scarcity is their predominant water risk, then levers such as rainwater harvesting, wastewater recycling, and smart drip irrigation systems may be the best suited to meet their needs. On the other hand, if a company identifies that Climate Resiliency (extreme weather events) is the predominant water risk, then levers such as increasing the geographic diversity of its facilities, supplier diversification, and securing an alternative water supply may be the best suited levers to meet their needs.
Globally, water is and will remain a pervasive challenge for companies and effective management is vital to achieving improved sustainability of this finite natural resource. Climate change impacts often manifest as water challenges, and as climate expert James Bruce has said, “If climate change is a shark, then water is its teeth.” Across the business landscape, we are in a position to act, as this disruption to our natural environment has opened the door for opportunity and makes business sense. Companies who develop water stewardship programs and manage their physical, regulatory, and reputational risks will be the ones most equipped to capitalize on these opportunities and sustain their businesses well into the future.