By Will Sarni
Is your business taking water for granted?
In most developed nations, clean, safe drinking water is so cheap and abundant that we use it to flush toilets and water lawns. But in many parts of the world, water is a scarce and precious resource. As global water use continues to rise, we believe water management is becoming a strategic business issue — even for companies headquartered in areas where water is plentiful.
Global water use has more than doubled over the past 50 years, thanks to rapid population growth and the emergence of developing economies in pursuit of a modern, high-consumption lifestyle. Meanwhile, the supply of clean, safe water is shrinking.
Water is the ultimate renewable resource, but it’s not unlimited. The Earth doesn’t create new water — it just continuously recycles the water that already exists. Underground sources that have been accumulating for thousands of years are being sucked dry, and surface sources are being steadily destroyed by urban development and pollution. If these trends continue, forecasts predict that by 2030 half the world’s population will suffer from a shortage of water.
When water is cheap and readily available, most businesses don’t give it a second thought. But as demand outstrips supply, the true value of water quickly becomes apparent — especially since business uses tend to be a lower priority than supplying citizens with water and food. If demand for clean water exceeds the planet’s natural capacity to regenerate it — or we pollute our water sources beyond repair — businesses can expect to face severe shortages and skyrocketing prices.
Food and beverage companies obviously need to worry about water. But they aren’t alone. Other industries that are also heavily dependent on water include everything from agriculture and energy to pharmaceuticals, mineral extraction, and semiconductor manufacturing. When you get right down to it, every business in every industry relies on water to operate in one way or another.
The cost of water is not an accurate reflection of its importance. When water is scarce, it can literally be a matter of life and death. Companies that operate in arid regions are forced to battle for water, not just against other companies, but against the needs of a thirsty population. This can have tremendous ramifications for a business, and can even threaten its ability to operate. In India, for example, some businesses have had their licenses revoked in order to provide more drinking water to the public. And in Africa, beverage companies often shut down for months at a time due to lack of water.
For businesses that rely heavily on water, disrupted operations are a major risk. Without clean, usable water, beverage companies can’t produce products. Mining companies can’t extract minerals. Oil companies can’t drill. And factories and power plants can’t function because they can’t keep their equipment cool. In water-intensive businesses like these, the value of water management is directly proportional to the value of the activities it enables.
" Without clean, usable water, beverage companies can’t produce products."
Water management can also create value by catalyzing innovation in areas such as recycling, desalinization, data analytics, and leakage detection and repair. A decade ago the Sloan Management Review predicted that the global sustainability movement would lead to transformational technologies and new ways of working that would help companies adapt to a world without cheap energy and abundant raw materials.1 More recently, the Harvard Business Review predicted that sustainability initiatives could be a touchstone for innovations and new business opportunities that increase revenues and profits2.
As a business leader, you can improve your company’s performance by using water management to reduce risk and drive innovation. But how you manage water can also have a big impact on the public’s perception of your company and brand. Driving a full beer truck past people whose children are dying from dehydration and malnourishment is no way to create a positive brand image. On the flip side, actively promoting your company’s water management efforts can give your reputation a major boost. In one of Interbrand's recent Best Global Brands reports, we reported that businesses face a stark choice: “Develop and implement strategies to carve out a meaningful presence as a good corporate citizen, or run the risk of seeing your brand value erode and your business suffer.3” Today, managing the public’s perception of your company is more important than ever — and it increasingly revolves around water.
Given the widespread impact that water can have on a business, in our experience, it is crucial for companies in water-intensive industries to design and execute an enterprise-wide strategy for water stewardship. Not just for their own operations, but for their entire value chains. Specific elements include:
- Identifying and mitigating current and potential risks of not having sufficient quantity or quality of water to meet the needs of your company’s value chain
- Uncovering potential business opportunities in the form of new products and services that may be driven by increased competition for water
- Demonstrating brand leadership by seizing the opportunity to meet a shared challenge and build strong relationships with key stakeholders
Although water management is a global issue, it is ultimately a local problem. Every local watershed presents specific issues and challenges and requires individualized solutions and strategies. An effective water stewardship strategy should be tailored to the specific attributes of water in each locale where your company operates. These attributes include a wide variety of factors such as geography, social norms, culture, timing, and quality. Your strategy will also depend on how your company and value chain partners use water, where water use is highest, what level of quality is required for particular activities, and numerous other factors such as current and future regulatory requirements.
Developing a water stewardship strategy is a three-phase process:
Phase one—Manage your water footprint and engage key stakeholders. Understanding your company’s water footprint is the first step toward effective water stewardship. It involves determining the amount of water you and your value chain partners use to produce a specific product in a specific location. Although the practice of “water footprinting” is still in its infancy, a number of tools and standards have begun to emerge, including a methodology developed by the Water Footprint Network. Information about the methodology and statistics on product and national footprints are available on the organization’s website, www.waterfootprint.org.
"Although water management is a global issue, it is ultimately a local problem."
Phase two—Evaluate risks and opportunities specific to your business. This can be achieved by mapping water risks globally and at the watershed level, locating areas of current and potential water scarcity, and then using the resulting insights to drive your business planning.
Phase three— Design your strategy. Your water stewardship strategy should align with your business objectives. Does your growth strategy include emerging markets where water scarcity is acute? Are you considering an acquisition with unknown water risks, or do you have significant operations in water-scarce areas? How will you report and disclose your results? Questions like these are key to boosting performance and perception through improved water management.
Many global companies today are relying on developing and emerging markets for growth, which makes water a strategic business issue and major risk factor — even if water is cheap and plentiful at home.
Companies that use too much water can have their licenses revoked, operations disrupted, and reputations damaged. In light of these risks, it is essential for companies to develop a holistic strategy and plan for reducing water usage, protecting and preserving the water supply, and developing contingency plans to ensure business continuity in the event of a severe water shortage. In this day and age, smart companies wouldn’t dream of operating without a risk management strategy for critical resources such as information systems and energy. It’s time to think of water in the same way.
Will Sarni is a Director and Enterprise Water Strategy Practice Leader for Deloitte Consulting LLP
Copyright © 2012 Deloitte Development LLC, All rights reserved.
Sloan Management Review, “Global Sustainability and the Creative Destruction of Industries” by Stuart L. Hart and Mark B. Milstein, Fall 1999 2
Harvard Business Review, “Why Sustainability is Now the Key Driver of Innovation,” by Ram Nidumolu, C.K. Prahalad, and M.R. Rangasswami, September 2009 3
Interbrand 2009 Best Global Brands and IB/H&P 2009 CC study