Water, water everywhere... or is it?
Alastair Woods from the Carbon Trust explores why businesses need to take better account of water risk in their supply chains.
I work in London. It is a big wet city. A big wet river runs through the middle of it. When I turn on a tap clean water comes out. Wastewater is treated and sanitation facilities are readily available. So as the light drizzle patters against my office window, and a mass of umbrellas worm their way along the street below, it can feel challenging to grasp the scale of water risk facing businesses today - even those based in a country such as the UK, which seems to have access to water aplenty.
However, this year, the World Economic Forum put water crises third on its list of the global risks of highest concern when looking at the likelihood and potential impact of a whole host of economic, geopolitical, environmental, technological and social issues.
We are quickly learning that rapid population growth and economic development are greatly increasing the strain upon a finite freshwater resource. The risk is heightened further as human activity remodels drainage systems, and climate change impacts destabilise supply. The reality of our global water situation is becoming starker every day, and most businesses are facing water risk in some form.
Many business activities require water as a key input - from agriculture to energy to hi-tech - and sometimes the direct impacts are obvious. For example, earlier this year water shortages in India resulted in a major Coca-Cola plant being closed by local government.
But water risk means far more for a business than just water scarcity - it is also about water pollution, corporate reputation and the licence to operate. Thousands of companies across China in industries such as textiles, chemicals, dyes, and paper have had production halted because of issues related to wastewater pollution, harming agriculture, fisheries and human health.
Seeing the fuller impact of water risk requires us to change our thinking, and carefully consider the broader consequences of water use. This is especially true when considering supply chain risk.
Floods in Thailand caused a slowdown in global car production and the manufacturing of hard-drives for computers, as components became short in supply.
Droughts in Russia also led to restrictions on agricultural exports and a spike in global food prices, which not only cut profit margins for food manufacturers and retailers, but has also been attributed as a major cause of the Arab Spring.
Even in the comparatively sedate UK countryside, the Somerset Chamber of Commerce estimated that the flooding earlier this year cost local businesses more than £17,000 each in financial and productivity losses.
So how should smart businesses respond to this risk? Reducing water consumption and improving efficiency is a good start. However, to truly address the risk, businesses need to adopt a more strategic approach. The type, and scale, of water risk is largely dependent on location, and this requires a deeper understanding of the issues in the relevant water basin. Only once these site-specific issues are understood, can interventions be tailored in an effective and meaningful way.
The need for a holistic approach was highlighted by a recent Carbon Trust project, working with leading global pharmaceutical company, GlaxoSmithKline (GSK), to help identify and mitigate water risk across all of its global operations.
GSK had made substantial reductions in water consumption, but realised that they needed to address their full water impact in order to protect other water consumers in the community, and mitigate supply chain risk. For example, a site located in Scotland might not have much need to reduce consumption due to the abundance of fresh water, but because it is surrounded by protected wetlands, it may make more sense to redirect focus and resources into enhancing the purification of its wastewater. Therefore, the aim of the project was to design a water impact framework, helping sites evaluate all areas of their water impact, and then effectively reduce the risk where necessary.
An output of the project was a customised tool for assessing the impact of individual sites around the world, looking at four key categories: water availability, water quality, health impacts, and licence to operate (including reputational and regulatory risks).
The tool was designed to be used by non-experts, providing each manufacturing facility with an overall water impact score, and an indication as to which issues it should aim to address. Each site is then provided with a tailored guidance document, delineating cost-effective options to mitigate water risk, from community engagement and advocacy, to water purification and efficiency technologies. The end-goal is to be able to quantitatively measure, and credibly reduce, year-on-year water impact.
Going beyond simple volumetric measurement to assessing the full range of water impact is the key to taking meaningful action on the most pressing issues. Only through this approach can an organisation credibly and robustly demonstrate efforts to address water impact - maximising efficiency and minimising risk.
Businesses need to master their reduction of water consumption as well as develop a full understanding of water impact across their own operations and supply chains. And because of the localised nature of water risk, it is only through understanding the unique water issues at a site’s location that it will be possible for a business to determine an adequate response.
So, as I leave the office, and flick open my umbrella, watching small streams glide across the pavement and down the drain, I contemplate the importance of this unique resource. It’s time we started addressing the full spectrum of water issues, so that if there is too much, too little, or it’s too dirty - we’re prepared.
Alastair Woods is an analyst at The Carbon Trust, which supports organisations in understanding and implementing opportunities in energy efficiency and low-carbon technology.
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