The message from stakeholders and investors is clear: Companies are expected to govern and begin disclosing water-related business risks. Historically, most companies have been able to simply acknowledge water as one of many important business issues. Much has changed in the past few years, with water positioned as a competitive issue and expectations trending towards quantification of water-related financial liability.
However, growing disclosure pressure isn’t the same as providing pragmatic “how to” for characterizing and quantifying water-related business risks. Moreover, characterizing the risk is only the beginning. The real challenge for companies is how to strategically prioritize risks and opportunities, build necessary competencies, and drive local water management plans. Why is water such a challenging, and potentially paralyzing, business issue you ask? Consider these factors:
- Nearly every activity, product, or business transaction uses water in some form – yet, there is no substitute;
- Water is both a local and temporal issue with potentially widely varying conditions (e.g., floods and droughts can occur in nearly the same location);
- Water, in general, is difficult to bound, measure, transport, and define access rights;
- It’s challenging to justify water-related strategic or capital investments based upon traditional ROI calculations;
- Cross-functional participation and solutions are required, including engagement up/down a company’s supply (value) chain; and,
- It is widely considered a human right, placing it in the sweet spot for media, political, and stakeholder attention.
What does this mean for companies that have yet to fully embrace water as a core business issue? There are two basic options:
- Start or accelerate a water strategy soon and possibly stay “ahead of the curve” thus determining your own pace of implementation; or
- Do the Basics – hedge your bets that water will not directly impact your company and expectations will stagnate. Given that water appears to be a resilient issue, companies that hedge could face monumental leaps to catch up to peers and meet stakeholder expectations in the near future, especially given the complexity and location-specific aspects. The cost of inaction could be significantly higher than self-paced implementation.
So, the first question many companies ask is how fast do they need to move? Well, the direct impact of water issues on any given company depends upon a range of variables including sector, size, brand recognition, and public image. First, let’s look at what we are seeing:
- Publications – recently published materials appear to be trending towards standardized buckets of water risk: Physical; Regulatory; Reputation; Investment. This has translated the business risks into simplified, real world concepts for a wide-range of stakeholders and investors to more easily comprehend and formulate inquires.
- Surveys – increasing number of non-governmental and supply chain surveys, including the second annual CDP Water Disclosure Project questionnaire, have significantly increased transparency of existing corporate strategies and knowledge gaps.
- Corporate Reporting – more companies are reporting water metrics, as well as water footprints, product life cycle assessments, and intensity indicators.
- Initiatives – water-focused NGOs and collective action partnerships have increased exponentially in recent years ranging from advocacy to standard development.
Collectively, these actions have provided investors and stakeholders with confirmation that 1) water is in fact a real business and investment risk; 2) a majority of companies are not proactively addressing the issue; and 3) water can be effectively managed, quantified, and reported on as demonstrated by the small number of corporate leaders in this space.