March 19, 2013
By Pacific Institute Staff
Emerging corporate practice and research suggest that the environmental, political, and social realities of the 21st century mean that environmentally and socially responsible corporate water management is not only an ethical responsibility for companies, but also increasingly an integral part of ensuring business viability and reducing business risk.
The strategic decision to proactively manage water-related risks is driven by five primary motivations:
- Ensuring the company’s local legal or social license to operate in a specific location;
- Preventing or reacting to operational crises resulting from inadequate supply or quality of water or water-dependent inputs in a specific location;
- Assuring current and potential investors and markets that business operations will continue to be profitable into the future by assuring water availability for operations and supply chains;
- Upholding corporate values and ethics based on sustainable and equitable principles by contributing to the well-being of watersheds, ecosystems, and communities; and
- Gaining competitive advantage over competitors due to stakeholder and consumer perceptions that the company uses natural resources responsibly with minimal impacts on communities.
While wasteful or polluting operations certainly create significant risk for companies, water-related business risks are driven as much, if not more, by unsustainable watershed conditions outside their fencelines, such as water scarcity, pollution, or weak water governance. For example, water scarcity may result in insufficient volumes of water to maintain production. Poor ambient water quality might increase pre-treatment costs borne by industry. Weak water governance may result in erratic water deliveries resulting in production delays. For such reasons, companies have a stake in ensuring both the sustainability of their own practices, but also the efficacy of water management in the watersheds in which they operate.
Inefficient water use, water scarcity, pollution, competition for water, climate change, and other water-related concerns can affect companies in a number of different ways. However, water-related business risks generally fall into three broad categories:
- Physical/operational risk: Physical risks stem from having too little water to maintain production (scarcity); too much water (flooding); or water that is unfit for use (pollution).
- Reputational/stakeholder risk: Reputational risks stem from changes in how stakeholders view companies due to their real or perceived negative impacts on the quantity and quality of water resources, the health and wellbeing of workers, and aquatic ecosystems, communities, and future business viability.
- Governance/regulatory risk: Risks related to public water governance can occur simply as a result of more stringent water allocations and/or regulations, but also in response to ineffective, poorly implemented, or inconsistent water-related policies and regulations.