Pacific Institute Insights

Shared Risk, Shared Interest: Corporates and Their Role in Sustainable Water Management

By Peter Schulte, Research Associate

June 18, 2013 

Businesses around the world are making the strategic decision to invest in water-use efficiency and wastewater treatment in their operations. From a business perspective, these efforts reduce operational costs, help alleviate reputational damage due to harmful impacts on ecosystems and communities, and manage risks related to insufficient water supplies. However, many businesses are increasingly going beyond these “inside the fencelines” efforts to encourage more sustainable water management throughout their supply chain and the watersheds outside their factory gates.  They do so by facilitating water-use efficiency and pollution reduction measures of other actors in their watersheds; advocating for efficient, equitable, and ecologically sustainable water policies and practices at the local, national, and international scales; investing in public water infrastructure expansions or upgrades; and a variety of other approaches.

In 2012, 53% of Global 500 companies responding to CDP Water Disclosure reported that they have experienced detrimental water-related impacts to their business in the last five years.

However, some are skeptical of these efforts. They question businesses’ intentions and ability to (and interest in) bringing about positive outcomes for the public interest. They argue that “beyond the fenceline” corporate water strategies in reality perpetuate a history of undue corporate influence on public policy that subverts the public interest in favor of corporate profit.

These concerns are not unfounded. There is indeed a long history, and ongoing threat, of undue corporate influence on public policy as well as great potential for “greenwashing,” where companies strive only to appear as if they act in a responsible manner.The reality though is that circumstances are different now than they were even ten years ago. Water challenges are worsening around the world and recognition of this crisis is growing. Consumers and investors are increasingly demanding for corporate sustainability. We now have more mechanisms in place to assess and differentiate between good and bad corporate actors. All of these realities create much greater incentives for companies to align their water-related practices with the public interest than in the past and therefore present a potential paradigm-shift in the ways companies relate to water and sustainability in general.

Skeptics might assert that corporates actually have no economic reason to promote sustainable water management, and therefore cannot be relied upon to do so. However, in 2012, 53% of Global 500 companies responding to CDP Water Disclosure reported that they have experienced detrimental water-related impacts to their business in the last five years, while 68% identified water as a risk to their business. In 2011, Gap Inc. cut its annual profit forecast by 22% due to production limitations driven by water shortages in Texas, India, Pakistan, and Brazil. Further, effective advocacy campaigns in India have already forced Coca-Cola to close its plant in Plachimada, Kerala and pay $48 million in damages due to the belief that Coca-Cola’s groundwater pumping hindered communities’ ability to extract the water needed to maintain their livelihoods.Skeptics might also wonder how water managers and those advocating for the public interest will themselves benefit from companies operating in a stressed watershed. Can corporates actually be an effective champion of the public interest? Wouldn’t it be of most use for water-intensive companies simply to stop operating in areas with water shortages?

Ecosystems and communities have more to gain from positive, meaningful action from corporates than from having them simply pack their bags and leaving.

Consider the case of Sasol, a global integrated energy and chemicals company with its main production facilities in South Africa. Sasol has recognized water security as a material challenge to its operations, some of which are highly reliant on the inland Vaal River system. Sasol has approached a number of municipalities to implement water conservation initiatives. One such project used Sasol funds to adjust the pressure management system within a township, thus reducing water leakage in off-peak hours and boosting water supply. This project saves 28 mega-liters per day at a capital cost of $500,000 funded by Sasol with an operating & maintenance (O&M) cost of USD $0.02 per cubic meter. By comparison, a project to improve internal water-use efficiency at a Sasol plant, which was also being undertaken at the time, required $50 million in capital expenditures and saved only 18 mega-liters a day with an O&M cost of USD $2.00 per cubic meter. Sasol’s implementation of this “beyond the fenceline” water strategy has created system-wide water savings and supported local water security to the benefit of all, while reducing water management costs for both local government and the business itself.

The lack of financial, technological, and informational resources in many watersheds underscores the reality that current governmental expenditure and investment in sustainable water-resource management is low in many places across the globe. In many cases, this may be due to corruption or a lack of awareness of the importance of sustainable water management. In other cases, it is because many governments face many competing demands for resources and policy attention and may lack the resources needed to manage water in a sustainable and equitable manner.

The private sector can and should play a critical role in bridging this resource and capacity deficit and advancing sustainable water management around the world.

This does not mean we should be blind to the very real possibility of policy capture and greenwashing. It means we should focus on how to best encourage corporates to act responsibly and equitably and how to further improve our mechanisms for detecting and rewarding those that are acting in a sustainable and socially-desirable manner.

 

Pacific Institute Insights is the staff blog of the Pacific Institute, one of the world’s leading nonprofit research groups on sustainable and equitable management of natural resources. For more about what we do, click here. The views and opinions expressed in these blogs are those of the authors and do not necessarily reflect an official policy or position of the Pacific Institute.

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