How to Best Manage Corporate Water Risk
Water has a place on the risk agenda for every business, either as a direct operational issue or in the supply chain.
And the risks continue to grow, be it too much or too little water, or water that’s too dirty or too expensive.
Some leading companies are already changing the way they approach water management by investing in water-efficient technologies and working with suppliers to encourage more responsible water use. This includes Nestlé.
After opening its first “zero water” plant — meaning the plant does not use any local freshwater resources for its operations — in 2014 in Mexico, Nestlé last year began investing in technology to help reduce water use in California. The company expects its California efforts to save 55 million gallons of water a year, a reduction of nearly 8 percent compared to 2014 levels. This includes transforming the Nestlé USA milk factory in the city of Modesto into a “zero water” factory that will extracts all the water it needs from milk used to manufacture dairy products.
Another example of corporate water management best practices: Hormel Foods has set a goal is to reduce water use by 500 million gallons by 2020. From 2012 to 2014, the company reached 67 percent of its goal. This was achieved in part by the team at Farmer John meat products, which implemented a variety of water reduction projects including high pressure water system automation, condensing tower treatment automation, wash cabinet water and wastewater load reduction. Combining these technologies, the team saves 27.9 million gallons of water, or 22 percent, from 2013 to 2014 — far exceeding the original 2 percent freshwater reduction goal.
PwC’s Lauren Koopman works with companies to understand and manage their water risks. She tells Environmental Leader there are three primary actions companies should take to best manage their water risk.
1. Understand the different types of water-related risks
Koopman says water management issues pose a few different immediate and significant risks to companies. The first is operational impact. “Storms, droughts, and other severe weather events can cause disruption of operations, increased supply chain costs, and erosion of product quality due to pollution,” Koopman says.
Another is regulatory impact. “Stricter regulations can cause higher water-quality standards and increased costs related to treatment and litigation,” Koopman says. “Companies are looking more closely at the risks pertaining to each of their locations.”
Finally, consider reputational impact.
“Companies’ operations can adversely affect local access to clean water and marine ecosystems and lead to negative publicity,” Koopman explains. “Domestic and multinational companies alike have faced public backlash over issues related to depletion of local groundwater supply. Consequently, some companies are making significant investments in community education initiatives, starting long before these organizations begin operations in some areas.”
2. Evaluate the impact of water to the company’s bottom line
What is the value at risk? Consider where the organization is most vulnerable to the risk of water scarcity as well as the potential economic impact. “Is the company in compliance with regulatory requirements in order to keep operating under local jurisdictions?,” Koopman asks. “Are more regulations expected? Is there a potential for backlash related to current or expected water use?”
Also, consider the total cost of water. “Take into account all the costs associated with the company’s water usage. The procurement price of water may be low, but are you tallying transport, treatment, and discharge costs? Are you including the water needed to meet energy needs? Are rising prices ahead?”
And don’t forget opportunities and value creation associated with water risk. “Does the true cost of water suggest that you should focus on innovation?,” Koopman asks. “What if you could eliminate the need for water from certain production processes, or invent products that would help customers use less water?”
3. Get tactical
This final action consist of seven steps for companies to take, Koopman says.
- Provide, and properly maintain, drinking water, sanitation and hygiene services in the workplace for the health and well-being of a company’s workers.
- Measure and monitor water management practices. Track the extent to which direct operations use and affect water resources.
- Drive operational efficiency and reduce pollution. Implement water efficiency and pollution reduction measures that improve performance and begin to manage risks and negative impacts.
- Identify and understand water-stressed and high-risk basins. Identify and investigate those areas that are experiencing water stress or are considered high-risk.
- Integrate water management into business strategy. Think strategically about developing policies and programs to address top water priorities.
- Leverage improved practices throughout the value chain. Address water risks and negative impacts in the value chain.
- Advance sustainable water management and engage in collective action — engage externally to ensure long-term business continuity by contributing to the sustainable management of shared water resources on which the company relies.
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