Water is a problem that has historically been overlooked, but the conversation around water is growing, and companies no longer have the excuse to turn a blind eye.
The World Bank has found that failure to tackle the current water crisis by implementing better water management practices could cause 6% regional GDP losses by 2050.
Investors who want to consider water could make decisions on companies based on how those companies address the value of water throughout their operations by, for example, reporting on and managing their water-related risks.
This post is a commentary. The views expressed are those of the authors, not necessarily Mongabay.
The U.S. surprised many by vowing to reduce its carbon emissions by 50%. This pledge followed hot on the heels of a similar announcement by the U.K., and many other positive speeches from world leaders gathered at President Joe Biden’s virtual summit. Yet there was no mention of the earth’s most precious resource – water – and of companies’ often troubled relationship with it.
Global water use has more than doubled in the last 40 years. But water scarcity is a topic that interests few people compared to levels of atmospheric carbon dioxide or global temperature rise. Yet, most industries would not be able to survive without it. Water is not just essential to agriculture. It is non-replaceable in manufacturing, technology, mining, energy, and more. Just look to Taiwan, a country currently experiencing a historic drought that is threatening its ability to produce computer chips.
As businesses now look to fall in line with the carbon pledges governments make on the global stage, why are they not held to similar standards on water?
The water crisis is often described in terms of the excessive number of people who lack access to clean water or sanitation. This is an ongoing disaster, but the water crisis does not stop with people alone. The agricultural sector takes up approximately 70% of global water withdrawals, with the industrial sector comprising a further 19%.
The World Bank has found that failure to tackle the current water crisis by implementing better water management practices could cause 6% regional GDP losses by 2050. For context, global GDP losses through climate change will be half that over the same period. Considering the high water requirements of business, many of these costs will fall to individual corporations. In a recent global report, out of 296 of the world’s largest companies with consistently reported water data, 77% cited exposure to substantial water-related risks.
Physical risk takes the form of water scarcity, flooding, or water that is unusable through pollution. But there are other related challenges. For example, if poor regulation allows a company to dump contaminated wastewater in a river, this will cause physical risks for those downstream. The subsequent introduction of regulation could then drive up the costs of the company in question.
Lack of corporate transparency has caused issues too. In conjunction with corruption, for example, can lead to unstable regulation and increased business uncertainty, while a lack of transparency in and of itself can be an exacerbating factor in corporate scandals, such as that which faced Coca-Cola in India a few years ago.
This has not been a simple problem for companies to tackle. While some water-related reporting guidance does exist, in the context of today these tend to be either too sector-specific or too preliminary. There are currently no specific and universal guidelines for how any company can, and should, mainstream their water-related disclosures.
We urgently need regulation that provides companies with guidance on what and how to report and help push for standard water reporting practices worldwide.
We hope that introducing regulation such as the Sustainable Finance Disclosure Regulation (SFDR), which includes water-related disclosures, will start this process for the financial services at least. At a larger scale, upcoming universal water-related guidance from Climate Disclosure Standards Board (CDSB) could provide the first step to a comprehensive solution if companies resolve to follow it.
Investors have a role to play too. Those who want to consider water could make decisions on companies based on how those companies address the value of water throughout their operations by, for example, reporting on and managing their water-related risks. Widespread investment in such companies would help to mitigate water risks within individual investors’ portfolios. However, it would also encourage transparency around water use and promote companies who seriously consider water’s value, thereby helping to fight the water crisis at a larger scale.
Water is a problem that has historically been overlooked, but the conversation around water is growing, and companies no longer have the excuse to turn a blind eye. Companies are the primary users of water worldwide, and so while being significant contributors to the problem, they are also a crucial part of the solution.
Roan du Feu is a Research Associate at Arabesque Asset Management, and Georg Kell is the Chairman of the Board at Arabesque Asset Management and the Founding Director of the United Nations Global Compact.
Banner image caption: A plastic beverage bottle floats in the shallow waters of Sand Island in Hawaii. Image by David Slater / NOAA Coral Reef Ecosystem Program Marine Debris Team, 2015.