Water Scarcity Puts Revenue At Risk
The Water Risk Monetizer, industry’s first publicly available financial modeling tool that enables businesses to factor current and future water risks into decision making, now provides users with insights into how water scarcity impacts revenue.
The free tool’s new assessment helps water-dependent businesses better understand the full value of water to their operations and identify revenue at risk based on current and projected water scarcity.
The Water Risk Monetizer, first introduced in 2014, was developed by water technologies and services firm Ecolab and natural capital organization Trucost. The Water Risk Monetizer is a secure site available at no cost to businesses throughout the world, and only the user has access to the information provided.
The tool is designed to help companies address the impact of water scarcity on their ability to operate, generate profit and grow. The premise for the tool in its expanded form is:
- Water scarcity has the potential to increase the cost of water, which makes operations more expensive and reduces profit margins.
- Water scarcity limits availability, making it more difficult to access the water a business needs to operate which can decrease production and result in loss of revenue.
Developing effective water management strategies can be hindered by two major factors, the organizations say. First, water is often not priced to reflect its full value. As a result, many businesses are not factoring potential cost implications associated with water scarcity into business decisions.
Second, businesses rely on water and often take its availability for granted and assume necessary water supplies will be available in the future. The reality is that the world’s water supplies are limited. Demand is increasing and quality is declining due to the need for more food and energy, increased economic development and other factors.
The tool provides businesses potential financial implications related to water scarcity risks and the likelihood that these implications will occur.
The tool assesses the potential cost or impact of water risks in ways similar to how other risks are considered in planning and capital allocation by providing:
- Risk-adjusted water cost: monetary estimate of the full value of water at a facility level, based on what water would cost if supply and demand were accurately reflected.
- Potential revenue at risk: estimated amount and likelihood of the revenue that could potentially be lost at a facility due to the impact of water scarcity on operations.
To calculate revenue at risk, this new assessment estimates the value of the revenue that could potentially be lost at a facility due to the impact of water scarcity on operations. The tool uses a revenue-at-risk model to estimate the amount of water available to the facility — its “share” of total water available to industry water users in the basin based on the facility’s contribution to the local economy.
Because water is a finite resource that is shared by many users in a water basin, the amount of water that should be available to a facility may be less than what a facility needs.
The amount available also could change over time, as water scarcity increases or as a local economy grows (the tool forecasts revenue at risk over three, five and 10 years). The revenue-at-risk model compares the estimated amount of water a facility requires to generate revenue (cubic meter per USD of revenue) to the facility’s share of water in the basin if water were allocated among water users based on economic activity (contribution to basin-level GDP). If more water is required than the basin share of water allocated (as determined by the model), then a proportion of the facility’s revenue is potentially at risk.
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