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Water scarcity – what can businesses do to reduce their water risks?

Three years ago, Cape Town received international acclaim for its water conservation policy. Fast-forward to today, and the city is facing a severe water crisis with their estimated water supply to run out within the next three months. The combination of population growth, lack of diverse water sources and extreme droughts in recent years has left Cape Town counting down to “Day Zero,” the day when the city’s tap will be turned off.

Water is indeed a scarce resource. Only 3% of the Earth’s water is freshwater, and of this 3%, two-thirds of it is locked up in groundwater aquifers and glaciers, inaccessible for human consumption (as shown in the diagram below). Its scarce nature has been an on-going global issue for many years. According to the World Health Organisation, water scarcity already affects four out of 10 people. As we continue to face rapid population growth, unpredictable weather patterns due to climate change, and water pollution. In short, we can expect other developed cities to face similar situations as Cape Town.

Access to water is fundamental to business. For industries with water-dependent processes within their supply chain, water scarcity poses a serious business risk, particularly for industries that heavily rely on agricultural products. Having too little water, or water that’s too dirty or expensive, can expose businesses to risks and have consequences to their direct operations or supply chain.

Apart from a few leading companies, corporate water stewardship has largely focused on operational efficiency and pollution reduction. The shortcoming of this approach lies in its inability to address the fundamental issue of securing a reliable, sustainable water supply. Often, water stress impacts caused by withdrawal and pollution are experience locally. To properly manage water supply, the approach should align with the local context. The context-based water target (CBWT) approach is considered more effective in managing water supply. It takes into consideration:

  • Scientific understanding of the local water basin’s conditions;
  • Local and global policy objectives; and
  • The needs and perspective of various stakeholders.

By understanding the basin’s condition scientifically, companies can better understand basin limits and adjust their operations and water requirements accordingly. For example, Coca Cola conducts Source Vulnerability Assessments at each manufacturing location to determine the potential water quality and availability risks as related to  their operations, the local community, as well as the surrounding ecosystem. The assessment considers current and historic water quality, existing stress factors and potential risks due to extreme weather conditions or natural disasters to holistically evaluate the water security status.

Together with sound business policies, the CBWT approach, to a certain extent, needs to be aligned with local public water policies. Assuming local authorities have properly determined the legal limits of water withdrawals and pollution, alignment with local policies can help with addressing local social and economic needs. This also opens up opportunities to work with local stakeholders towards a common goal.

For companies and stakeholders to both benefit, a “sustainable basin threshold” should be determined. A “sustainable basin threshold” is the limit at which all community and environmental needs are met without compromising the long-term viability of local water resources. Ideally, companies should then align their internal targets to help achieve the “sustainable basin threshold.” By doing so, this provides companies with:

  • A more predictable operational environment and long-term liability;
  • Reduced likelihood of stakeholder conflict;
  • Reduced uncertainty in regulatory change; and
  • The ability to contribute to local, national and global development priorities like the Sustainable Development Goals.

As for other stakeholders that work for corporates, they can also benefit from corporate investment, innovation, capacity building and awareness raising. The graph below shows the gradual change required by companies to move towards a CBWT approach.

Source: Exploring the case for corporate context-based water targets, 2017

Cape Town’s water shortage is an indicator of the global water crisis we face today. More than ever, companies with a large water footprint will need to start being proactive in properly managing their water use with consideration of local basin conditions. By using the CBWT approach, companies can holistically take into consideration the scientific information and existing policies of the local basin.

Businesses concerned about their water risk should investigate water use along their supply chain. By mapping out water-intensive activities within the supply chain against climatic conditions of where these activities take place, we can determine whether water-intensive activities are taking place in areas with high water risk. From there, businesses can set water use performance indicators derived from scientific knowledge of the local water basin, water policies and stakeholder engagement findings. By aligning internal targets bespoke to the local context, businesses can contribute to the environmental and economic wellbeing of the local community associated with water supply.

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