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Is Water the Next Frontier?

Many organizations around the world, whether big or small, are understanding the imminent pressure brought about by water-related risks that slowly threaten their respective industries. According to Ceres , a non-profit organization on sustainability leadership, the rising global population, combined with economic growth in emerging markets, will trigger a growing demand for potable water and food. A McKinsey survey supported this claim, as they reported that the global water demand will grow by 40% by the year 2030.

Ceres also reported that water risks accompanied by the changing climate such as droughts and extreme flooding in some areas are becoming more and more severe. The world has encountered unprecedented weather conditions in the last five years. There were extensive droughts in countries like Russia, Ukraine, China and the United States; while Australia, Pakistan and Philippines experienced extreme flooding. Consequently, the water risks triggered by climate change have started to put pressure on major economies in Asia and Latin America as the availability of water supply during the spring and summer months continues to worsen annually.

The recently released Intergovernmental Panel on Climate Change (IPCC) report even foretold that longer periods of droughts and extreme flooding are bound to happen in the coming years. According to CDP , such factors are bound to hinder economic development and will likely cause extreme poverty to emerging and developing countries.

CDP also reported that countries such as China and India are already starting to realize the economic effects of mismanaging water resources. Such realizations led the Indian Planning Commision to declare that their country’s existing approach to water management jeopardizes their economy. While in China, where 20% of the world’s population resides, only 7% have access to fresh water. The Economist even quoted former Chinese prime minister Wen Jiabao when he admitted that water shortages threaten “the very survival of the Chinese nation.”

Water as a Core Business Issue

The business community, including policy makers and non-governmental organizations, are realizing the water-related challenges and risks that affect their business. The 2013 World Economic Forum’s Global Risks report confirmed that businesses really need to be concerned about water as it represents one of the three highest environmental risks that needs to be dealt with as soon as possible.

According to research published on , water risks and challenges such as water scarcity, water pollution, contaminated drinking water and degraded ecosystems imply that water is one of the major social and environmental challenges for businesses around the world today. In fact, many industries worldwide consider water an integral part of their business operations and supply chains.

Organizations use water as the main component for many food and beverage products, while other companies use it to cool industrial machinery, irrigate crops and extract fossil fuels. The research also reported that due to insufficient and polluted water supply, or the lack of technology to deliver a reliable and consistent supply of water, companies may not be able to meet and maintain the targeted volume of their production which, in turn, affects the organization’s bottom line.

Due to the escalating impacts that water risks pose, businesses, investors and shareholders alike are also focusing on water-related issues. A good indication of this is a rise in the number of investors calling for greater corporate transparency, specifically on water. Investors are turning their attention to water-related issues as they take an interest in seeking a more comprehensive disclosure regarding water management and the risks associated with it. This is why major investors around the world are supporting CDP’s Water Program . According to the 2013 Global Water Report of CDP , there has been a 59% increase in the number of companies who disclosed their water management efforts to investors since 2012.

As investors continue their campaign on water management disclosures, some of them have also instigated water-related shareholder resolutions, particularly in the United States. According to Ceres , investors in the United States have filed more than 30 water-related shareholder resolutions during the last five years. These resolutions instructed companies to conduct water risk assessments, disclose water management operations and address water risks in their operations and supply chains. Most of these resolutions were implemented in industries such as oil and gas, food and beverage, and electric power companies.

Mapping the Next Frontier with Water Stewardship

As the growing concern for water becomes more apparent among stakeholder groups such as investors, corporations and policy makers, CDP advises companies to mitigate water-related challenges and risks through water stewardship. CDP identified companies with robust water stewardship strategies as those that have a comprehensive knowledge of water use across their value chain and those that understand the impact that water-related issues have in their business.

Although a number of organizations have a formal water stewardship plan, every company has a different approach to water stewardship as each firm implements their own water-related mitigation strategy for their respective industry. With a majority of companies pursuing different types of water-related practices, the World Wildlife Fund’s 2013 report on water stewardship identified five best practices of existing and emerging corporate water stewardship programs :

1. Identify the right water risk awareness strategy
Organizations should remain up-to-date with current water issues and debates across their industry in order to come up with the right water risk assessment strategy. At the very least, a company’s water risk strategy should start with an internal awareness campaign of water issues, from the CEO and top management, to the employees and company’s suppliers. The right water risk strategy should also explore the perception that external stakeholders (e.g., consumers, press and NGOs) have of the company. This assists organizations in designing the most suitable water stewardship plan that supports other stakeholder groups directly affected by water-related issues.

2. Gather pertinent data on your industry’s water impacts and water risks
A company needs a thorough understanding of their own water footprint, including the measurement of their water impacts and water risks. Doing so will help them find out how their company’s actions affect their stakeholders and the ecosystem. This kind of data gathering should also include the identification of high risk “water hot spots” that are perceived by the water quality and water quantity issues relevant to the company.

3. Initiate an internal action towards water stewardship
An organization’s first step in initiating a water stewardship program is to promote engagement among its employees and suppliers. Establishing the right water mitigation strategies through water governance and pollution reduction are crucial elements of internal action. Companies should also begin engaging their suppliers in their water stewardship program to fully comprehend the potential risks and opportunities of water stewardship initiatives.

4. Join the collective action on water stewardship among stakeholders
Partnerships and engagement among external stakeholders such as other companies, the public sector, government agencies and NGOs provide an avenue to create sustainable solutions on water stewardship that encompass a wider range of stakeholders who have a vested interest in water management. Water stewardship partnerships would be deemed successful if key participants address their shared water risks, and take on water-related issues that involve all stakeholder groups and not just those relevant to their own business.

5. Support water governance and public policy
Advocating water stewardship among various political, social, economic and administrative systems in the public policy arena helps water mitigation efforts. Promoting a broader public interest in water issues creates greater political support towards progressive water legislation and implementation. In the long run, efforts to influence public policies will help reduce the future water-related risks and issues brought about by climate change.

The Emerging Leaders in Water Stewardship

An organization’s response to mitigate water and promote water stewardship shows their readiness to take on business risks as well as potential opportunities. CDP’s 2013 Global Water Report highlights how investors and companies work together to translate water-related risks to “business value at risk” in order to come up with the best strategy to mitigate them.

Here are four examples of companies that are paving the way to promote water stewardship in their respective industries:

1. AT&T – Wireless Technology Industry
As the wireless technology industry continues to expand and become increasingly competitive, water plays an integral part (directly or indirectly) in maintaining the temperatures of servers and other equipment. AT&T uses water in their cooling towers to cool the equipment used in transferring mobile data to its customers. In order to reduce the water and energy use of their cooling facilities, AT&T partnered with the Environmental Defense Fund (EDF) to build a water and energy management strategy for their company. AT&T, together with the EDF, developed its first set of water-related goals, such as the reduction of water use by approximately 150 million gallons by 2015, and the installation of a cooling tower filtration system. Initial results showed significant savings in water, sewer and chemical, and energy costs.

2. Cummins Inc. – Manufacturing Industry
Water plays a critical role in the manufacturing process as it helps in the fabrication, washing, diluting, cooling and sanitation of products. Cummins, a multinational Fortune 500 company that manufactures diesel and natural gas engines, recognizes the importance of water, so they developed a comprehensive water management strategy for their organization. Cummins designed a tool that helped identify water opportunities to improve and set a benchmark on their water use. Aiming to proactively drive operational design choices to mitigate water risks, Cummins was able to build a more sustainable operation that would help their company mitigate future water risks and challenges.

3. Hershey’s – Food Industry
Since the food industry relies heavily on water in their food production processes, they are one of the most at risk to the threats on the quality and quantity of the world’s water supply. As Hershey’s has been working to curb its impact on water supply, it initiated water use audits in all its facilities. The audit assisted in the development of the company’s comprehensive water management plan in order to promote water mitigation efforts in the company. The participation of Hershey’s in reporting initiatives such as the CDP Water Disclosure Project and Dow Jones Sustainability Index ( DJSI ) also provided the additional incentive for the company to be proactive in its water management efforts and integrate water stewardship in the framework of the company’s corporate culture.

4. MillerCoors – Beverage Industry
Potable water is a primary ingredient as the beverage industry uses the same water sources as the local population. MillerCoors , the second largest brewery in the United States, conducted watershed assessments in brewery locations that experienced water risk in their agricultural supply chain and identified three regions (Texas, Colorado, California) in water stress. Due to this, MillerCoors partnered with the Sand County Foundation to help improve water quality and quantity in these areas. As MillerCoors initiated partnerships with foundations and communities, they also helped in improving water management, both in their community and their supply chain. The partnership didn’t just help their company, but has also improved the water management techniques in all their watersheds.

Though there are some companies leading the way to promote water stewardship, CDP ’s 2013 Global Water Report points out a significant disparity between investor expectations and company actions. The number of investors requesting CDP for corporate water data quadrupled in the last three years, however there has been no noteworthy increase in the number of Global Fortune 500 companies participating in CDP's water initiative within the same time period.

This shows that businesses have not yet fully grasped the benefits and impact of water stewardship to merit a shift in their current practices and behavior. Just like the companies listed above, firms that make a shift towards creating a comprehensive water management strategy achieve business resilience and gain a competitive advantage. Organizations must realize that safeguarding water as a vital natural resource will ensure a sustainable and more resilient future for their companies.

FirstCarbon Solutions’s (FCS) Water Management Solutions

As CDP’s Gold Consultancy Partner and Silver Software Partner, FCS works with organizations to discuss the macroeconomic effects of water, as well as its business value. In addition, FCS explains how water stewardship helps build a competitive advantage and resilience by taking advantage of viable platforms to manage their water-related impacts.

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