The term ‘water risk’ is new enough to draw a blank on Wikipedia search, though the concept of measuring and managing water-related risks dates back to antiquity. Egyptian priests in Pharaonic times used nilometers to predict flood or drought from the rise and fall of the Nile. Now, the recent rise of water risk tool launches suggest that the business community is waking up to the physical, reputational, regulatory, and litigation risks around freshwater availability in a warming world.
A March 2010 survey of 19 sustainable water management tools by the World Business Council for Sustainable Development (WBCSD) and International Union for Conservation of Nature (IUCN) listed only three as “identifying and assessing water-related risks.” The past six months has seen a doubling of that number, with the unveiling of at least three new water risk tools.
New and old tools
These initiatives build on longer histories. For example, the new Global Environmental Management Initiative (GEMI) local water tool (LWT), which focuses on local water impacts, traces its roots back to the 2002 launch of Connecting the Drops, a 5-module water sustainability tool, and the 2007 launch of Collecting the Drops 3-module water sustainability planner.
GEMI’s 40-plus member Water Sustainability Work Group also developed the LWT for oil and gas, designing it to work in sync with the IPIECA(the global oil and gas industry association for environmental and social issues) global water tool for oil and gas.
This is a customised version of the WBCSD’s global water tool (GWT). Launched in 2007, the GWT helps companies assess risks by mapping their water use across global operations and supply chains. Essentially, local water tool users can input their GWT data to drill down from the global to the local level to examine site-specific risks and opportunities.
WBCSD’s pioneering work set the foundation for other new tools as well, such as the Ceres Aqua Gauge, which helps companies benchmark and improve water risk management across four categories (governance and management, measurement and risk assessment, stakeholder engagement, and disclosure) while simultaneously aiding investors to track and assess water risk disclosures and management processes of companies in their portfolios.
“Competing freshwater demands and supply limits are creating material risks to companies’ bottom lines and investment portfolios,” said former WBCSD president, Björn Stigson. “Yet, communication between institutional investors and companies on water management has always been limited. Addressing this communication gap is what triggered the WBCSD to get involved in Ceres Aqua Gauge.”
How water risks could damage companies
Aqua Gauge draws on Ceres’ history of research and engagement on water risk: a February 2009 report outlined the growing risks of water scarcity and climate change for business and investors, while a February 2010 report examined the limited scope of water risk disclosure by 100 companies in water-intensive sectors. For example, “only 17 companies report local-level water data and only a handful provide this information in the context of operations in water-stressed regions. And no companies are providing comprehensive data on their suppliers’ water performance — an especially glaring omission when one considers that a vast majority of many corporations’ water footprint is in the supply chain.”
Aqua Gauge helps companies counteract this latter shortcoming by providing guidance that extends beyond the company’s four walls.
“The example here would be Coke, which is rolling out a global requirement that all of its 900-plus bottling plants assess their source water, the water’s vulnerability, and risks they face,” says Brooke Barton, senior manager of Ceres’ water programme. “All Coca-Cola plants have to develop plans by the end of 2013 to contribute to solutions outside their factory walls that address those risks — whether it means helping local farmers reduce their water use, supporting reforestation of local headwaters, or capturing rainwater and recharging aquifers.”
Coke is the poster-child for water risk, as its bottling plant in India’s Kerala state remains closed due to local opposition dating back to 2004, despite the fact the company proved to the country’s supreme court that it drew water from a different aquifer than the drought-drained local wells. This case demonstrates the complex interrelationship between physical, legal, and reputational risks that can damage business. More than a third (38%) of the companies responding to the 2011 carbon disclosure project water disclosure global survey said they have experienced such risks. In addition to engaging more with local stakeholders, Coke has since built data tracking and management systems – which the company is now sharing.
In August 2011, the World Resources Institute (WRI) launched the Aqueduct Alliance, a consortium (including GE, Goldman Sachs, Bloomberg, Dow, and Talisman) for measuring and mapping water risk. Coca-Cola donated its proprietary data on local-level stresses on water availability for water risk atlas, Aqueduct’s centerpiece alongside a 14-indicator water risk framework grouped into three categories: physical risk related to quantity, and to quality, and regulatory/reputational risk. This combination steps beyond water footprinting, or the total volume of freshwater used to produce the goods and services consumed by companies.
“So with Aqueduct, we don’t just count gallons — we look at the local context,” says Aqueduct director Betsy Otto. “How scarce is water in the region you’re operating in? How might that change in the future? How stiff is competition for water resources? What is the quality of the water?”
“With water, metrics without this context are of very little value and can be misleading,” says WRI markets & enterprise programme coordinator Robert Kimball. “It’s tempting for a company to say: ‘We used X million gallons last year, and our goal is to reduce that by 10%in 10 years.’ It’s an admirable goal and probably will wind up being a good step, but conserving 1 gallon in the Sahara is a lot more valuable than conserving 100 in the Amazon.”
Tools and limitations
That said, Aqueduct falls short of implementing sustainability context, the global reporting initiative principle of gauging a company’s proportional impacts within social and ecological limits, the most robust and accurate form of measuring sustainability. As well, Aqueduct is limited in geographic scope, covering four key river basins around the world: the Yellow River currently, with the Orange-Senqu, Murray-Darling, and Colorado river basins coming online shortly. “The major challenge we face is finding robust global datasets with sub-basin level information, since most global datasets are at a country or river basin scale,” said Otto of WRI.
The other tools have their limitations as well: both LWT and Aqua Gauge are excel-based, requiring users to fill data into individual spreadsheets, instead of putting it on broadly accessible cloud-based platforms.
Aqueduct and Aqua Gauge are highly complementary tools, according to Otto of WRI; they both “fill important niches for companies looking to analyse and improve their water management,” according to Barton of Ceres. The LWT distinguishes itself as “the only tool that addresses those issues purely from the user’s perspective, so that companies may better understand their external impacts, business risks and opportunities related to water use and discharge at a specific site,” say GEMI executive director Steve Hellem and director Amy Goldman.
All of these tools show promise for converting companies’ water footprints into water “handprints,” the concept recently conceived by Greg Norris of Harvard to measure the positive impacts that can reduce negative environmental impacts within sustainable thresholds. Then,World Water Day will shift from a cautionary to a more celebratory occasion.
Bill Baue is a senior research fellow with AccountAbility. He also teaches an MBA in managing for sustainability in Malboro College, Vermont.
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