From droughts to floods, water risk is a pressing business concern

When companies think of risk, most don’t think of water. In the past, water was available even in areas of drought, and flooding followed a fairly predictable pattern. But as the climate warms, the world is starting to see more extremes — and that often means too little or too much water. Water scarcity contributes to wildfires, but it also contributes to other problems: when groundwater levels fall, water quality deteriorates, often resulting in rising concentrations of minerals and salts that are expensive to treat or can even render the water unusable. On the other hand, stronger storms are already making flooding a new risk in areas that were previously unaddressed. Floods and droughts are now sudden, unforeseen events – increasingly hitting areas in quick succession.

This growing variability has caught large companies unprepared.

Risk occurs on several fronts. Businesses in water-stressed areas face an increasing risk of government restrictions on water use or loss of access altogether. Last year, Taiwan Semiconductor Manufacturing Corporation, the world’s largest computer chip maker, had to transport water miles to keep its chip factories running when local water supplies ran out. Barrick Gold, a Canadian mining company, is being forced to close the Chilean portion of its $8.5 billion Pascua Lama gold and copper mine amid fears the mine is taking too much water from the local watershed. And a water shortage on the Colorado River threatens water supplies for more than 40 million Americans and food production for the rest of the country.

While the warming climate dries some areas, elsewhere the evaporating water is dumped in torrential rains. A recent article in Nature predicted that flash floods are likely to become more frequent in a warmer climate. Most companies pay for flood insurance, but the data and models they rely on are crude and seldom incorporated into an analysis of actual operational impacts.

The changes in the natural environment drive reactions in the regulatory environment. The US Securities and Exchange Commission (SEC) has already proposed disclosure rules that could come into effect by the end of the year. Under the proposed rules, businesses will be required to disclose the percentage of their buildings, facilities or land that are located in areas at risk of flooding and the amount of assets that are located in areas with water stress, along with the total water use of those assets.

There is no way to escape from these global changes, but there are ways to understand and plan for them. Right now, many companies have no idea how high their risk could be, let alone how investors might view these vulnerabilities. They shouldn’t wait for disaster — or mandatory regulatory disclosures — to force them to account for their vulnerabilities. Instead, they must start collecting relevant data and proactively prepare to face the growing threats.

run dry

There are three basic sources of water: surface water such as rivers and lakes, which are primarily replenished by rain and snowmelt; groundwater in regrowing aquifers several hundred feet below the surface; and deeper, non-refillable aquifers with so-called fossil water that are thousands if not millions of years old.

While changing rainfall patterns are causing drought in some areas and flooding in others, groundwater is fast becoming a pressing concern.

A study that measured groundwater from 2002 to 2017 found that more than half of the world’s major aquifers are being depleted faster than they are being replenished. Another study predicted that by 2050, more than half of the world’s population will live in water-stressed areas. The trend will intensify with ongoing climate change and population growth.

Groundwater is poorly managed in most parts of the world and companies should not assume their business is sourcing water from a renewable source. One of the world’s largest aquifers, the Ogallala Aquifer stretches from South Dakota to Texas and provides drinking water for more than 2 million people in eight states, as well as irrigation water for the entire region. Large-scale withdrawal of water from the aquifer began after World War II and has since accelerated. Scientists estimate that the southern portion of the Ogallala, from central Kansas to Texas, will run out of water in less than 30 years. They estimate that once it is depleted, it will take over 6,000 years for the aquifer to be replenished by rain.

Versions of this story happen everywhere. And as the global water crisis has entered public awareness, companies have responded with actions to highlight their water stewardship. The problem is that, without government oversight, it’s difficult to know how effective these measures are, or if they’re just efforts to polish companies’ reputations. The point of the upcoming disclosure rules is to provide some transparency in the face of greenwashing PR campaigns that obscure the real story.

So what does this mean for companies?

Find the water level

The World Resources Institute, World Wildlife Fund and our company Waterplan each offer water risk platforms to help companies gather the information needed to make these disclosures. By bringing together satellite data, regional watershed data, and enterprise consumption data, organizations can better understand global and regional risks and quantify risk at the asset level, including flood and drought risk, water scarcity threats, and reputational risk.

Currently the world’s largest aggregator of corporate water use data is CDP, a non-profit organization originally named the Carbon Disclosure Project, which disseminates an annual water safety questionnaire as part of an environmental disclosure system for companies and their investors. Current protocols for measuring and reporting water-related risks are largely aligned with the CDP Water Questionnaire.

The key recommendations on water disclosures come from the Task Force on Climate Related Financial Disclosures (TFCD) – these are what the proposed SEC rules will follow. These guidelines were also used to shape regulations in the UK, EU, Switzerland, Brazil, Hong Kong, Japan, New Zealand and Singapore. Founded in 2015 by the G20 Financial Stability Board and chaired by Michael Bloomberg, the TFCD needs information on what companies are doing to mitigate risks associated with climate change, including water. Many countries make TFCD reporting mandatory.

The Taskforce on Nature-related Financial Disclosures was launched in 2020 and offers an online portal that guides companies in reporting nature-related risks such as freshwater consumption in polluted areas. This newer taskforce focuses on risks beyond climate change with a stronger focus on water than TFCD. It has released a draft disclosure framework that it hopes will become the gold standard for reporting and managing environmental risks.

It is not yet clear which disclosure protocol will take precedence in which jurisdictions.

Today there are dozens of metrics, tools, and frameworks to measure how companies impact nature. Mandatory disclosure of these impacts is imminent, so business leaders should familiarize themselves with the tools available, including the CDP questionnaires and software platforms that collect the relevant data. It will be required soon, but it’s good practice to be prepared.

What companies can do now

Businesses need an action plan, and they need it now. There are a few simple steps to get you started.

First, they should assess their water immediately number Environmental impacts and set water consumption reduction targets based on local conditions. You can invest in systems to improve reporting and traceability of water-intensive inputs. There is a converging market of mitigation tools and services to implement cost-effective solutions – such as B. the use of collected rainwater, air cooling condensate and treated wastewater – while the water taken from rivers, reservoirs or wells is returned to the source.

Second, they should assess their water immediately quality Impact and use this assessment to set goals and develop action plans to improve that impact, such as: Bangladesh, for example, gets 80% of its water from groundwater and in some cases drills wells more than 200 feet deep. As a result, the World Bank estimates that up to 17% of the country’s population is exposed to elevated arsenic, salinity and other hazards of groundwater depletion.

Third, companies should engage deeply in water stewardship activities in the river basins where they operate by advocating for watershed protection or supporting new water conservation and groundwater sustainability policies such as reforestation and wetland conservation, contributing to the replenishment of aquifers. In South Africa’s Cape Town, which nearly ran out of water a few years ago, the city is cutting off invasive species that suck water. Australian acacia trees alone are estimated to use nearly half a billion gallons of water a year, which would otherwise seep into the Atlantis aquifer north of Cape Town.

Finally, companies should ensure that water-related risks and opportunities are fully embedded in corporate governance and decision-making, from the boardroom and senior management to employees at all levels of the workforce. Gathering relevant data is key to understanding where the risks lie and how to address them.

While the service sector of the economy is less dependent on water than physical industry, there are few industrial or manufacturing processes that are not vulnerable to water risks. Clothing and textile manufacturing, cotton growing, animal husbandry, oil and gas exploration, and mining are among the most water-intensive industries, according to the CDP. In case anyone needs convincing, CDP reported that water disruptions will cost businesses $301 billion in 2020 — five times more than it would have cost to address these risks upfront.

Water risk may not be your most pressing business concern right now, but it could be at some point in the near future. It won’t necessarily be easy to start tackling it now, but it will only get harder — and more costly — the longer you wait.

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