As evidence of climate change mounts, businesses across all sectors of the economy are developing strategies for identifying and avoiding the risks it poses. Given the important role of freshwater in powering economic development and growth, and the vulnerability of our water resources, efforts have focused on the links between climate change, water and the corporate sector.
For businesses, risk assessment has always been an important part of planning and operations. The failure to honestly and comprehensively assess risk can undermine production and profitability.
Extensive work has been carried out to try to evaluate water-related risks to businesses by organisations such as the Pacific Institute’s Corporate Sustainability Program, the UN CEO Water Mandate, Ceres, BSR, and others. In the past such work focused on water scarcity, the impact of extreme events such as droughts and floods, and the threat of contamination. More recently, an emphasis on how climate change will contribute to these risks has been added.
A critical driver of success in the 21st-century economy will be how companies and investors balance the competing demands for water and other resources in a changing climate. The best scientific assessments on climate threats to water resources – including those from the the IPCC and the US National Academy of Sciences – suggest rising temperatures could pose the biggest risk. As demands for water by agriculture and ecosystems increase, water quality in lakes worsens and the loss of snow and ice to mountain regions speeds up.
Changing storm patterns will influence flood and drought frequency and intensity, altering runoff in major river basins. Rising sea levels are already pushing salt water into coastal ecosystems and groundwater aquifers and threatening water-related infrastructure such as wastewater treatment plants.
These risks will directly affect business operations. They will impact on the availability of raw materials, the reliability of supply chains, demand for products and financial returns. Declines or disruptions in water supply can undermine manufacturing operations where water is needed for production, irrigation, material processing, cooling, or washing and cleaning.
Contaminated water supply can lead to higher costs for pre-treatment and the need for new investment in infrastructure. Changes in the quantity and timing of water availability are already affecting thermal and hydropower generation. And all of these challenges make companies more susceptible to reputational, regulatory, and financial risks – particularly in developing countries where local people often lack access to safe and reliable drinking water.
These risks are more than hypothetical: beverage companies in India have already lost the licence to operate in some communities due to concerns about groundwater overdraft. Oil and gas producers have suffered financial and reputational losses (pdf) after contaminating water supplies in Latin America. A growing number of companies that source products from regions short of water are publicly disclosing their concerns about water-related risks in financial documents. Taken together, all of these factors present businesses with increased uncertainty about the future of water.
What businesses can do to manage water-climate risks?
1. Measure and publicly disclose information on the use of water and energy throughout company operations, including through the supply chain. These resources pose risks and, unless they are measured and key metrics shared, those risks cannot be managed and reduced.
2. Assess physical, regulatory and reputational water risks associated with climate change. Explicit attention should be paid to understanding the potential impacts of climate change on local water resources.
3. Include these risks in your business planning and operations.
4. Engage others early. Water-management planning should involve everyone from employees and investors, to customers, local communities, the public and government. This can reduce misunderstandings and help corporations anticipate and respond to emerging issues.
5. Seek opportunities for partnerships. Because water, energy and climate are connected to social, political, cultural, and environmental issues, companies can rarely achieve the best management outcomes on their own. By pooling knowledge and resources, companies can respond to water and climate change concerns more efficiently and effectively than through individual actions. An online platform for water stewardship and collective action on climate resilience and adaptation already exist and are thriving.
Climate change is now unavoidable, with severe risks to water quality and supply. No matter what our politicians and governments do to address emissions, all of society – including the business community – must prepare to understand and address the water-related challenges these changes will bring.
Dr Peter Gleick is a member of the US National Academy of Sciences and a scientist tackling global freshwater, climate and energy challenges.
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