Assessing Your Business’ Water Risks

Water stewardship is often motivated largely by a desire to understand and address a business’ water-related risks. Water risks range from location to location, industry to industry, and company to company. So every business must assess its own risk in order to eventually develop a comprehensive and meaningful corporate water strategy. The process for this can range from cursory to quite detailed, but generally includes assessing the ways in which a company uses and affects water resources and the circumstances of the specific locations in which it and its suppliers operate.

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Water risk comes in many different shapes and sizes. It is caused by a wide range of water-related challenges and affects businesses in various ways. Below we offer a brief synopsis of all the various types of water risk for businesses as an introduction to the topic.

The source of risk

Water risk begins in a variety of different ways. At its core, it can be divided into two broad categories:

Risk due to the company

Risk stems from business practices that harm or could harm the environment or communities (e.g., water pollution, wasting water, failing to offer proper drinking water to employees, etc.).

For example, when a company pollutes nearby freshwater ecosystems due to untreated wastewater, it is susceptible to brand damage and perhaps even a weakening of its social license to operate. With risk due to the company, risk stems from actions that are directly within the company’s control.

Risk due to river basin context

Risk stems from the broader context in which a business operates (e.g., drought, polluted waterways, inadequate infrastructure, etc.).

For example, when a facility is located in a river basin with weak and ineffective water governance, there will likely be insufficient regulatory measures to ensure that water supplies are kept within sustainable levels and allocated fairly and appropriately. Thus, the operating context in which the business works is less stable and has higher risk. With risk due to context, risk stems from realities beyond the company fenceline over which the company has limited control or influence.

The cause of risk will ultimately determine what types of solutions will be more relevant and appropriate. For a company that is contaminating local waterways because it does not properly treat wastewater, drought awareness campaigns probably won’t be particularly effective or welcome. And for companies who do not pollute significantly, a drought awareness campaign is likely more helpful than investing heavily in wastewater treatment facilities.

However,  most companies are exposed to both types of risk. Thus, for most companies, some combination of both types of solutions will be beneficial and perhaps even necessary.

The effect of risk

Water risk is commonly categorized into three different types that describe how water challenges manifest themselves in relation to the company. They are:

Physical

The company has too little water, too much water, water that is unfit for use due to pollution, or inaccessible water. 

Water scarcity can halt industrial production simply because there is not enough water for production, irrigation, material processing, cooling, washing, or cleaning. A contaminated water supply may require additional investment and operational costs for pre-treatment. Availability and affordability of clean water may affect the interest or ability of customers to purchase or use certain water-intensive products and services. Water scarcity can also affect businesses indirectly by altering energy and food production.

Regulatory

Changing, ineffective, or poorly-implemented public water policy and/or regulations disrupt business activities.

Global water challenges, unsustainable industrial water practices, and increased concern among local communities about water are all putting pressure on policymakers to explore new policies. In many countries, water service providers are considering higher water prices to promote more efficient use to curb water scarcity. In others, governments are regulating industrial effluent to clean up their rivers, lakes, and streams.

However, regulatory risk is arguably most prevalent where governments are simply not able to effectively manage their water resources or create effective policies and regulations. In many areas of the world, crumbling infrastructure leads to incredible water losses, thereby exacerbating water scarcity. In others, a lack of water quality regulations causes rampant pollution to the extent that local industries must pay high costs to treat their incoming water before it is suitable for use.

Reputational

Perceptions that a company does not conduct business in a sustainable or responsible fashion with respect to water affect relationships with investors, customers, and other stakeholders.

Affected communities, civil society, investors, consumers, and the general public are increasingly engaged in issues of water sustainability. Inefficient water use or excessive pollution by a company in a sensitive river basin, whether real or perceived, can be incredibly damaging to a global brand’s reputation, share price, and ability to conduct business. For example, advocacy campaigns in India forced Coca-Cola to close its plant in Kerala and recommended it pay $48 million in damages due to the belief that Coca-Cola’s groundwater pumping hindered communities’ ability to extract water (India Resource Center, 2010).

As with the source of risk, understanding what types of water risk you faces allows a company to craft strategic, relevant responses that both manage water risk and advance sustainable water management for all.

Assessment Step 1: Compile the coordinates of relevant facilities

There are many free, online tools – namely Ecolab’s Water Risk Monetizer, WRI’s Aqueduct Water Risk Atlas, and WWF’s Water Risk Filter – that help companies understand the extent and type of their water risk. These are all great, easy-to-use, practical tools.

However, all of these tools use facility locations as a critical component of their risk assessment. As such, all companies with a serious interest in assessing risk should compile the locations of all relevant facilities, either in latitude/longitude format, state or province, or by river basin.

The following tools can help assess your location:

• Find latitude/longitude by clicking on a map: https://www.latlong.net/
• Find river basin by inputting latitude/longitude: https://riverbasins.wateractionhub.org/#find_lat_lng
• Find river basin by country: https://riverbasins.wateractionhub.org/#find_country

You’ll need to decide which locations you want to include in your risk assessment. At a minimum, you will want to include any facilities that your company owns or operates. Ideally, you will also include all water-intensive or water-polluting suppliers, whether they are manufacturers or agricultural sites. For many companies, the vast majority of their water footprint and water risk is located beyond the direct operations in their supply chain. The more facilities you include, the more robust your understanding of your company’s water risk.

Assessment Step 2: Assess your company’s high-level exposure to risk, based on location and industry sector

Once you have collected your location data, you are now well prepared to use the many free online water risk assessment tools to get a high-level understanding of your risk exposure. This high-level assessment will be based on two primary factors: 1) industry sector and 2) location.

Industry sector

Many water risks are not necessarily due to a company acting in an irresponsible or unsustainable manner, but simply because their industry sector is highly dependent on water. As such, no matter how efficient or clean their processes may be, there will always be a risk of disruption due to drought and other water challenges. Examples include the food, beverage, and apparel industries. These industries will always rely on water and thus always experience water risk, at least to some extent. The table below lists industry sectors that are typically exposed to at least moderate water risk.

By the same token, some companies will always face low to non-existent water risk due to the nature of the business. Even in the face of drought and severe pollution, their core business activities will likely not be significantly affected. Examples include software development, digital media, and financial services.

To assess your company’s exposure to risk based on its industry sector and other company-specific data, we recommend WWF’s Water Risk Filter. In it, your “Total Company Risk” score will give you insight into your risk exposure based on industry sector.

Location

The other factor that directly affects your exposure to risk is the hydrologic, regulatory, and social context in which your business operates. Again, you can be the most water-efficiency company in the world, but if other water users in your basin are inefficient your water supply may still be vulnerable and unsustainable. Similarly, you can have advanced wastewater treatment plants, but if nearby facilities do not, you may still be taking in highly polluted water. As such, most online risk tools assess facilities’ water risk based on the overall water stress of the river basins in which they are located.

To assess your company’s exposure to risk based on the water stress of the river basins in which it operates, we recommend WRI’s Aqueduct Water Risk Atlas.

When used in conjunction, these tools offer powerful insight into the extent to which the world’s water challenges affect your business and how. Generally speaking, if you are in an industry sector with medium-to-high exposure to water risk, you should seriously consider pursuing water stewardship. Likewise, if you have many water-intensive or water-polluting facilities in high-risk river basins, you should strongly consider implementing water stewardship.

Assessment Step 3: Prioritize facilities based on exposure to risk and importance to business

Up until now, your risk assessment has been geared toward understanding whether your business generally is exposed to significant water risk based on its industry sector and location(s). Next, you’ll want to begin prioritizing specific facilities with the highest risk exposure, while also understanding what type of interventions will be strategic and relevant at those locations. Some may require that you focus on internal operations, while for others intervening in local governance may be more relevant. Some more require that you focus on water use efficiency, while others may benefit more from improved wastewater treatment.

You can begin prioritizing facilities based on the tools we’ve already mentioned above. WRI’s Aqueduct Water Risk Atlas and WWF’s Water Risk Filter can both help you understand which facilities are most exposure to water risk based on their river basin context, and whether that risk is related to water quality or water quantity and whether it’s physical, regulatory, or reputational in nature.

From there, Ecolab’s Water Risk Monetizer is ideally situated to begin prioritizing action amongst your various facilities based on their importance to your bottom line. In fact, the tool prioritizes all your facilities in this way for you. Use this tool to both communicate the value of water stewardship to your colleagues and stakeholders and to begin creating a short-list of priority facilities to focus on.

All three of these online risk tools are invaluable to any risk assessment process. They will help you understand whether water is material to your business and in what ways, while also helping you create a short-list of priority facilities. These steps are essential for any robust water stewardship strategy.

However, once you’ve done so, the journey is only beginning. Every river basin in unique. While water efficiency and wastewater treatment are always helpful, there is no “one-size-fits-all” approach for water stewardship. Since risk comes in different shapes and sizes, so too will the responses to address them.

Developing a truly sophisticated and comprehensive understanding of the water risk at your various facilities will require an in-depth analysis beyond what any global online tool can provide. It will require that you engage with facility managers, local government official, local NGOs, and other key local stakeholders. Only through such engagement can you begin understanding the unique nature of water challenges in your priority river basins, what solutions will be most strategic and effective for those specific locations, and what role your company can and should play in advancing those solutions.