As our climate changes, water issues are on the rise. As well as causing serious humanitarian crises; droughts, floods, and other water-related events are presenting a growing number of physical, regulatory and reputational risks that businesses around the world must navigate. In fact, leading corporations reported USD 14 billion in collective detrimental impacts related to water in 2015-2016 alone.
And time is running out. These companies expect over half of the future water risks they have identified to materialize within the next decade.
Our latest research examines the practices of 50 publicly listed companies and how they integrate water scarcity in their assessment of business risks. We assess the vulnerability and resilience of these 50 companies, identify leaders and laggards, and highlight best practices from within and outside the sample.
Each company was ranked against two key variables that define water risk exposure:
1. Vulnerability: a company’s reliance on water resources (industry-specific) and its exposure to water scarcity (location-specific).
2. Resilience: a company management’s response to water risks.
Which companies are leading the way?
All of the companies in the sample operate in high water intensity industries and in locations with significant water risks. Some of these companies have managed to successfully integrate water risks in their decision-making process and minimize their overall risk exposure.
The table below presents the top ten leaders – companies which have successfully integrated water scarcity as a business risk in their core strategy.
Key characteristics of leaders
Collecting and monitoring data on water use and discharge is the initial step required to design and implement water management plans. Leading companies use this information to carry out risk assessments to identify and quantify water-related risks for direct operations as well as their supply chain.
The combination of external data and a ‘Water Resources Review’ process has enabled Nestlé to identify risks and key issues in water resources at a local level. This allows them to develop targeted action plans to ensure each facility is using water sustainably.
The shared nature of water risks demands engaging with a variety of stakeholders- local communities, employees, supplier, governments and regulators, NGOs, other industries, companies, and customers.
During Brazil’s biggest water scarcity crisis in 2015, Unilever launched their Omo ‘One Rinse is Enough’ campaign aiming to raise awareness on the volume of water wasted through extra rinsing during laundry and also to highlight how their product, Omo, works well with just one rinse. During the campaign, engagement on Omo’s social platforms tripled, visitors to Omo’s website doubled and the brand received positive media coverage. Underlying sales increased by 15%, compared to market growth of 8%, and the estimated water saving is 229 billion litres per year.
Innovation is at the heart of successful integration of water risks. Leading companies have programs to assess the lifecycle water impacts of all significant products, and systematically try to reduce these impacts and identify related opportunities for innovation.
In 2014, Nestlé completed a USD 9.5 million project to create their most water-efficient factory in Mexico. The new factory introduced processes to transform the Nestlé milk powder factory in this water-stressed area into a zero water withdrawals site. Innovative technologies used the water vapour generated when cow’s milk was evaporated to produce drinking water at the end of the process. The amount of groundwater saved each day (around 1.6m litres) amounts to roughly 15% of the total water used by Nestle Mexico each year, with a positive financial implication of around USD 184 million.
The combination of water-intensive operations and geographic exposure places companies at risk of experiencing operational disruptions, increased capital costs, community conflicts and impact on the bottom line. It is essential for investors to scrutinize how company management are integrating these factors into their business strategy.
Luckily for investors, help is available. KKS has been working closely with the Investor Water Hub of CERES as they develop an Investor Water Risk Toolkit. The publicly available resource will provide a common framework for investors to use to analyze and mitigate water risks.
On a warming planet, water scarcity is a problem that is only set to get worse. Smart investors and businesses need to take time to understand the risks and opportunities now if they are to stand a chance of mitigating the issues, and being fit to operate in a water-scarce future.
Read more about the risks, and how leading companies are responding in the full report.