Thirsty work - managing water

13th February 2012


Water2

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IEMA

With the issue of water scarcity rising up the corporate agenda, the environmentalist reports on how companies are responding

There are few businesses that could survive without water, yet it is a resource which is frequently taken for granted. As businesses have focused on higher-profile issues, such as energy use and carbon emissions, work on reducing water use has traditionally lagged behind. But the case for businesses to act is increasingly compelling.

Freshwater consumption worldwide has more than doubled since World War II and is expected to rise another 25% by 2030 as the global population reaches eight billion. One-third of the world’s inhabitants already lives in water-stressed countries and by 2025 this is expected to rise to two-thirds.

Below 1,000 cubic metres of water per person a year, a country faces water scarcity. Parts of northern China have as little as 750m3 available per person, while the UK, although generally perceived to be a relatively wet country, has only 1,300m3 of water available per person a year.

According to consultants McKinsey, the world may face a 40% global shortfall between forecast demand and available supplies by 2030.

Business risk

Water shortages caused by these trends will increasingly expose businesses to risks ranging from a lack of water for key ingredients or manufacturing processes to reputational damage.

The Carbon Disclosure Project (CDP), which has done much to encourage disclosure of corporate carbon outputs, has recently expanded its focus to water. The results of its second annual survey, which included companies from the FTSE Global 500, the Australia 100 and the South Africa 100, revealed that the majority of companies see water as a substantial risk in their business. Almost 60% of respondents reported exposure to water-related risk and more than one-third had already suffered water-related business impacts, with associated costs as high as $200 million.

Ignoring the impact of water use can cost companies dearly. The experience of Coca-Cola in India provides a stark example: in 2007, more than 400 people marched on the district magistrate’s office in the state of Varanasi demanding that the company’s bottling plant in the Indian village of Mehdiganj be shut down. The protesters claimed that the factory’s need for hundreds of thousands of litres of water dried up their fields, and polluted the land and the water tables.

Another Coca-Cola plant in the state of Kerala had already been shut in 2004 when the local authority refused to renew its licence due to local water shortages and pollution, which it blamed on the company. That year, at the firm’s AGM, there was a call for an independent report on the potential environmental and health damage from Coca-Cola plants in India.

Although the company’s reputation was damaged by these events, it saw the opportunity to turn the situation around and is now well known for being at the forefront of businesses striving to reduce the impact of their water use. In 2007, Coca-Cola pledged to replenish all the water used in its drinks and production processes by 2020. In 2009, the last year for which figures are available, it restored 28.6 billion litres of water, 22% of its target, through watershed restoration projects and schemes improving access to water supplies. From being the bête-noir of environmental campaigners, it now wins praise from WWF, the non-governmental organisation (NGO) most involved in campaigning on water.

The regulatory front

Another looming threat to business is greater regulation on water. A report by US business and environment organisation Ceres in November 2011 warned that regulators around the world are likely to take tough action as pressure on water supplies increases. This includes price rises and restrictions on water access. Conversely, it pointed out, even businesses operating in areas with little or poorly enforced regulation may face still greater risks as a result of unfettered use or pollution.

Governments around the world have already taken action. For example, South Africa has implemented legislation that prioritises domestic consumption of water over industrial users. It also provides specific allocations to protect the ecological integrity of water bodies. Droughts in China have prompted its government to introduce a target to reduce water use by 30% per unit of industrial output.

Businesses also have a positive incentive to act on water efficiency as saving water can save money. Derbyshire-based soft drinks manufacturer Cott Beverages saved £52,000 in a year on water costs after it installed a recirculation system to reuse water for forming seals. Financial savings come not just from water use, but also from associated costs such as energy. Jam maker Wilkin and Sons has identified ways of saving hot water, which costs £2.68/m3 compared with cold water costs of 58p/m3. There are also business opportunities from devising new products and services to improve water efficiency.

A board issue

Despite a growing awareness of the issues surrounding water, however, many businesses are still failing to fully appreciate the risks. In particular, water does not have as high a profile as climate change, despite the risks being more immediate. Only 57% of companies surveyed by the CDP have board-level oversight of water strategies and plans. This compares with 94% of similar companies whose board oversees climate change strategy. This contradiction is all the more puzzling since availability of water is inextricably linked to climate change.

The Intergovernmental Panel on Climate Change warns: “Water and its availability and quality will be the main pressures on, and issues for, societies and the environment under climate change.”

Stuart Orr, water policy officer at WWF, believes that awareness of water is catching up with that of climate change, but that water is much more complex for business to deal with. “Carbon is simpler to calculate and it’s simpler to know what to do about it. Water presents some real difficulties – it takes you into a realm of stewardship that is really uncomfortable for some firms,” he says.

Most companies are completely perplexed by water because of the social and environmental values connected to it, such as population increase and questions being asked about their resource use.

“With carbon, it’s about being efficient and driving your own intensity, but water forces you to act outside your ‘fenceline’. You can have lots of efficient businesses sitting around a river, but if the river is heavily impacted by overuse, then efficiency doesn’t get you anywhere,” explains Orr.

Water footprints

As yet, there is no internationally recognised standard for water resource management – although ISO is in the process of developing ISO 14046. Nonetheless, there is a plethora of tools and guidelines available to businesses to help them assess their water use.

These include the CEO Water Mandate from the United Nations Global Compact, the World Business Council for Sustainable Development’s (WBCSD) Global Water Tool, the Global Environmental Management Initiative’s water sustainability tools, the World Resources Institute’s aqueduct tool and the Water Footprint Network’s (WFN) water footprint tool.

The latter indicates the volume of freshwater used and/or polluted to produce the goods and services consumed by society or produced by a business, either in its direct operations or in its supply chain. Its calculation is complicated by various factors. For example, the production of one kilogram of beef requires 15,000 litres of water, according to the WFN. But this is a global average and there is huge variation around it. The precise footprint of a piece of beef depends on the type of production system and the composition and origin of the cow feed.

Brewer SABMiller was one of the first companies to calculate its water footprint in countries including Peru, South Africa, Tanzania and Ukraine. Andy Wales, head of sustainability at SABMiller, explains: “We’ve been working on water for a long time and have had some strong local programmes in place for a number of years.

“But when the WBCSD water tool became available in 2007, it allowed us to map all of the sites where we have operations and identify those areas which are at risk of long-term water scarcity. This then enabled us to decide where we most urgently needed to carry out further analysis and water footprinting.”

WWF, a founding partner of the WFN, has worked closely with SABMiller on its water assessments. “Water footprints are a great advocacy tool,” Orr says. “The footprint tool has been fantastic in bringing people into a water debate that they hadn’t considered before.”

However, Orr is concerned there is a lot of confusion about water footprints. Dealing with them should not be the first action that a company takes on water assessment and companies do not necessarily need to know every drop of water that they use, he says. “Water footprints are useful in places where issues have been identified – a footprint may help you drive performance improvements or set baselines.”

Ultimately, discussions need to move on from the quantity of water used to how it is used and what the impact is, Orr says. Although there has been an evolution in the past 10 years in the work companies are doing on this issue, there are still firms that are using water footprinting primarily to find “the perfect number to put on a label,” he complains.

Jacob Tompkins, managing director of water-efficiency campaign group Waterwise, is not a fan of water footprinting, which he says has become almost like a “cult”. He worries that it is taking companies’ attention away from action on improving water-catchment management. “Water footprints give corporates a lovely smokescreen to spend ages with accountants gathering data and giving performance indicators while completely ignoring any participatory stuff at the local level,” he says.

There is no doubt that some companies are using water footprinting to greenwash their operations, Orr believes. “A lot of people have been driven into the water debate and some of them don’t know why they’re there yet, quite frankly.”

Andrew Noone, senior consultant at WSP, which has been advising on water footprinting since 2009, disagrees. “There are no clients who are spending all this money on water footprinting just to have a nice page in their corporate social responsibility report.”

Not the new carbon

Both Orr and Tompkins are concerned that many companies are treating water in the same way as they treat carbon emissions. Understanding the difference between the two is a key challenge for firms working on water assessments, according to Noone. “Water is such a local issue – it’s not like carbon, which can be amortised globally, and the boundaries aren’t as clear,” he says.

Assessing the impact of water use is made more complex by the fact that water availability varies year on year, according to meteorological conditions. Water also has significant social and environmental uses, which are often not tied to the availability or quantity of water in a given location. As such, there are no straightforward or “one size fits all” solutions to water problems – each issue has to be dealt with in the context of its local setting. “If we want to go down the route of trying to raise the awareness of customers, water footprinting is the wrong tool,” says Orr. Action on water efficiency has so much more to it than just increasing or decreasing the total used, he argues.

This complexity can be daunting for businesses starting out on water efficiency. GlaxoSmithKline (GSK) intensified its work on the issue in 2010, when it set new targets for an absolute reduction in water use of 20% by 2015 in its own operations, which currently use 20 billion litres of water a year. GSK also wants to slash the amount of water used in its supply chain by the same amount by 2020. The company claims that the new focus is already having traction, estimating that in 2011 it reduced water use by about 5%, compared with a 1.6% reduction the previous year.

Richard Pamenter, vice-president of sustainability at GSK, says the company realises the key issue is the impact of its water use, rather than just the quantity it uses. For example, saving water at its Lake District factory would not have the same level of benefit as saving it at a more water-stressed site. It also needs to investigate the source and impact of the water used in all its ingredients. “There are some very complicated models and studies for assessing water impact in academia. The problem is that we can’t see how we can take those models and translate them into something constructive because it’s so complicated. We get paralysis by analysis,” says Pamenter.

GSK is working through the CEO Water Mandate to develop a tool to quickly identify where investing resources in water reduction will have the biggest benefit in terms of water availability in the whole system. “But we’re really feeling our way,” Pamenter reveals. Until such a tool is developed, he believes the best thing the company can do is to reduce the absolute amount of water in its operations.

“Is it the perfect thing to do? Not for the whole value chain, but we think it’s a good start because at least it will help us build our own capability and help us understand what we need to do,” he says.

Ultimately, Pamenter believes that for water assessment to move forward constructively, it will need collaboration between businesses, government, NGOs and stakeholders. “There are more questions than answers on this issue at the moment,” he says. This broad engagement is essential to ensure that local water users are involved in water efficiency work.

Wake-up call

There is no doubt that awareness of water risks will continue to grow among businesses. WSP has seen its work on water footprinting grow by 25% year on year, and predicts further opportunities from work following on from footprinting, such as supply chain strategies and customer engagement.

“It’s definitely a growing market,” says Noone. “Clients’ risk profiles are starting to consider where they build assets and how long they are going to be viable for. If water scarcity means that an asset only lasts three-quarters of its life then that’s going to be a pretty difficult conversation for a financial director to have with their board.”

Getting water taken into account when capital investment plans are being drawn up would have real value, he says. WSP is already working on this with a major client, Noone reports. He does not advocate businesses disregarding working in certain parts of the world purely on the issue of water, but argues that water should be taken into account during the design phase of a new asset so that businesses can operate on less water should they need to.

Orr believes that a lot of businesses are now waking up to water and will be increasingly less able to sit out the debate. They will need to know and act on all aspects of their operations and supply chain. “Part of the realisation of water is that you’re not going to be able to sit on the sidelines and pretend it’s not your issue.”

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