Business Strategy for Water Challenges

Business Strategy for Water Challenges

by Stuart Orr, Guy Pegram

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Product Details

ISBN-13: 9781910174272
Publisher: Taylor & Francis
Publication date: 10/31/2014
Series: DoShorts Series
Pages: 78
Product dimensions: 5.78(w) x 8.26(h) x 0.20(d)

About the Author

Stuart Orr is Head of Water Stewardship at WWF. He works closely with business and public institutions to improve and prioritize the management of water resources. Stuart sits on a number of corporate sustainability boards, partnerships and think-tanks – all lovingly obsessed with the management of our most precious shared resource. Most of his publications have been on water risk, measurement, agriculture, water policy and corporate governance.

Guy Pegram is a water planning engineer by training but spends most of his time dealing with the regulation and management of natural resources and infrastructure. He leads the dynamic and multi-disciplinary management consultancy Pegasys, through which he has spent the past 15 years addressing catchment water resources issues in Africa. More recently Guy has been involved in the global discussions around corporate water stewardship and the role of water in developing economies, which together pose the challenge and opportunity to build water and climate resilience into business and government activities.

Read an Excerpt

Business Strategy for Water Challenges

From Risk to Opportunity


By Stuart Orr, Guy Pegram

Do Sustainability

Copyright © 2014 Stuart Orr and Guy Pegram
All rights reserved.
ISBN: 978-1-910174-27-2



CHAPTER 1

Introduction


IT IS AMAZING TO CONSIDER the speed with which water risk has percolated to top the business list of concern. Today, the World Economic Forum ranks the freshwater supply crisis as the number three risk affecting the global economy, but already some companies are feeling the pressure closer to home. In April 2014, McDonald's launched their 2012–2013 Sustainability Report to an internal McDonald's Energy Summit. Ken Koziol, Executive Vice President and Global Chief Restaurant Officer, took questions from the assembled audience. 'What is McDonald's water strategy?' was the first question.

David Grant, Sustainable Development Project Manager at SABMiller has a similar story. 'We were used to taking questions from SRI investors [Socially Responsible Investors], but we are now suddenly being asked by institutional investors, what are you doing about water?' After many years of companies telling us that no shareholder, investor or CEO has ever asked a question about water, things are changing. These remarks from SABMiller and McDonald's are just two examples of what numerous other companies are telling us.

Those companies already underway with strategies to manage water are finding themselves at an advantage. McDonald's, for example, estimated its corporate supply chain water footprint, looked at water risk for its restaurants, and used these findings in determining the company's sourcing priorities. McDonald's will soon be releasing their new water strategy. SABMiller has led on water for many years after having identified water as a long-term strategic risk. The message is clear: what companies are doing on water has become a top priority for their stakeholders and increasingly, their shareholders. It is certainly time for business leaders to consider water in ways that they haven't before.

Freshwater supplies and their management stand out as one of the more formidable challenges facing humanity over the coming decades. In many parts of the world, water resources are stressed, and not only from a scarcity and pollution perspective. Fundamental issues relate to the governance and management of water, including investment, equity, ecological damage, loss of biodiversity and failed delivery of basic human services – the list goes on. But there are also plenty of examples where progress has been made and challenges have been successfully dealt with.

This book lays out how water challenges relate to business sustainability. It then proposes a strategic approach to water that will help you not only to understand this resource better but also to plan your own improvements, mitigate your risks and enhance the ways in which water is used and managed inside and outside your factory walls.

Some companies are already quite advanced in addressing water risks, while other are just getting started. What bears thinking through in depth are the ways that communities and companies share a complex 'root system' that feeds sustainable growth. If this book spurs a few more people to ask a new set of questions about water and to devise strategies and targets that will actually deal with the problems at hand, it will have met one of its fundamental goals.


1.1 From risk to opportunity – from ad hoc to strategy

To expand on what informs our perspective, it is worth explaining that the authors are career water professionals rather than sustainability experts. We have spent much of our working lives examining traditional aspects of water management: policy, accounting, regulations, governance, finance and planning, to name a few. We have come to Do Shorts because the interest in and awareness of water issues that we see from business today is rising but is as yet largely unguided. To shift from traditional corporate sustainability thinking to collective water management thinking means recognising that the pressures, realities, risks and opportunities that business faces from water are mainly external. Therefore an understanding of how water is actually managed by governments and shared in society must supplement what has been done in improving internal efficiency. Companies need to know what has and has not worked before in water management. That is where our perspective has real value. Many businesses are starting from scratch in understanding water, when in fact much of the groundwork outside the often-referenced sustainability circles has already been done.

Water is a unique resource, constantly on the move through the global water cycle, as rainfall, rivers, streams, ice or evaporation. It is not something that we necessarily destroy by using it, but instead we use for a short while before it moves through the system to another use at another time. Globally there is enough water to meet our needs, but since water is the ultimate 'uncooperative' resource, this means we cannot ensure that it will arrive at the time and place and in the right condition we need it. Water is a local issue – and locally there are many aspects of water's management and use that are out of kilter with the natural cycle. So as part of our collective education in water risk and opportunity, it helps to establish water's fundamental difference from other natural resources.

1. Water availability is variable in time and location so its short- and long-term future availability is uncertain. One river basin may be suffering extended drought while neighbouring river basins are experiencing devastating floods. Equally, a given river basin may experience droughts and floods in quick succession. Understanding operational and strategic risk around water is therefore a different matter from understanding natural resources such as minerals or forests, which tend to be much more static.

2. Water is a finite albeit renewable resource, the availability of which is physically constrained by the infrastructure available, not to mention being legally regulated in many places by complex historical water rights systems. Differing pricing mechanisms and levels of governance of water systems all add to the complexity of managing this resource.

3. Water is non-substitutable in most domestic and productive activities. The risks associated with scarcity at the scale of a river basin are therefore very real. Put simply, while there may be substitutes for carbon in energy production, only water can be used for drinking or for irrigating crops.

4. Water is essentially a local resource. It is bulky and costly to move in the volumes typically required for production, so it can only be transferred between neighbouring river basins up to about 500 km (or even shorter distances where it has to be pumped uphill). Because of these constraints, and because water flows from upstream to downstream users, risks and responses must be understood at a river basin scale – not at a global scale as is the case with carbon.

5. Water is fundamental to life and human dignity. Consider that rivers are part of a fragile ecosystem to which human settlements have historically been closely linked for transport, water use and waste disposal, and through their spiritual beliefs. Yet, these ecological, social and cultural dimensions are juxtaposed with the economic value of water related to its use in production processes. So more than with most natural resources, water management requires getting to grips with the risks around scarcity of an economic good, balanced with political risks given water's value as a social and ecological good.


This means that the insular thinking of yesterday's companies, framed around efficiency and technology, can no longer by itself prepare business for the future. Applying the same theory and response as has been used with carbon won't do it either.

It's fair to say that some companies have grown so large that their aggregate impacts could be compared with those of nation-states. The 58 companies that were analysed by CDP (formally Carbon Disclosure Project) in their 2011 Global Water Report alone represent a market value of US$2.49 trillion, equivalent to the GDP of a G5 country. These companies collectively abstract more than 1500 billion litres of water per annum, equal to 0.6 litres per day for every person on the planet. That's just 58 companies. While most companies already have no idea of how large or small their current dependence on water is, to our knowledge not a single company has estimated the water they will need for future growth. How will you demonstrate your understanding of evolving dependency and risk around a shared water resource? How can you anticipate the changes (social, climatic, political, investment, governance, demographics) in those growth areas over time? If your investors aren't asking for that information yet, they will.

Water is part of the risk profile now and it's here to stay. In CDP's 2013 Global Water Report, 70% of companies report exposure to one or more water-related risks that could substantively affect their business. Approximately two-thirds of risks expected to impact on both direct operations (65%) and supply chains (62%) will materialise now or within the next five years. Yet only 6% of companies have targets or goals for community engagement, 4% for supply chain, 3% for watershed management and 1% for transparency, and no respondents set concrete targets or goals around public policy. That's two-thirds of risks approaching with NO planned response!

The supporting investors of CDP are taking note. Piet Klop is Senior Advisor Responsible Investment at PGGM Investments. He argues that for mainstream investors water is all about risk – that is, risk to their investment portfolio. 'Acknowledging that water scarcity and pollution can in fact put investment value at risk is a key step to take for companies, but especially for investors', says Klop. He concurs that not all risk can easily be monetised, but risk does impact on long-term investment value regardless. The risk to a company's continuity of operations and supply, risk to their future growth and risk to brand value must be considered in any reasonable profile.

What Piet Klop and other investors tell us they are looking for is 'a strategy that doesn't stop at improving operational efficiencies, but gradually evolves into efforts that increase companies' water security. The rise of external risk and insecurity demands collective action with other water users and authorities. Such a strategy signals that company management understands the systemic nature of water risk, as well as its role and possibly the business opportunities in mitigating such risk.'

So if this increasing awareness and evidence of water-related risk is coming through disclosure and from investor demands, then why have water issues maintained such low priority if not total invisibility within most companies? Some are acting on the issue, but even they have struggled to direct management attention towards achieving coherence on company strategy. Felix Ockborn, Environmental Sustainability Coordinator at H&M, had these discussions internally. 'Water is to many still not considered a cost and it is therefore not high on the agenda in many countries, where there often are more direct and pressing concerns, such as social issues. How would we turn this indirect and rather more silent risk into a serious priority?'

Very few companies will be able to 'sit out' the coming decade's water challenges. Whether located in the US or Bangladesh, whether selling running shoes or semi-conductors, almost all business sectors depend on water. More than that, almost all suppliers do too. These connections in our ever-connected world make your suppliers' risk your risk too. Thriving in an age of water constraints means addressing shared concerns about water, not 'fighting your corner' to the detriment of others. Even the process of creating a water strategy will lead to new questions and insights. Being at the beginning of something need not be so daunting if you understand that there are tools and guidance at hand. Others are also going through similar experiences and this is a sphere where cooperation rather than competition is the key.


1.2 What is different about water risk?

When we started out trying to incentivise better stewardship of water, it became clear to us that we were fundamentally missing the business case. By working with companies like SABMiller, H&M, Lafarge, Nestlé and The Coca-Cola Company, we learned a lot about how companies think about and integrate the issues. It was by learning how they communicate internally, how they needed to 'sell' water within their company, that we in turn became better at knowing how to speak to what matters. We also came to better understand corporate social responsibility (CSR) initiatives through working at first hand with companies in developing countries. These initiatives never quite added up for us. They weren't designed to address risk issues other than the obvious 'community engagement' category. At the corporate scale, water targets and goals often seemed to miss the mark. Either they were drowned out by huge sustainability pledges or they were reactive to what companies thought people wanted to see.

Ben Tuxworth, Director at Anthesis Group, a new global sustainability consultancy, agrees. 'Big name corporate sustainability strategies have become a hostage to fortune for some of the early adopters. It may be that the era of grand claims and big targets – and making a virtue out of not yet knowing how to reach them – is coming to an end. They are greeted with growing scepticism by stakeholders inside and outside the business, particularly where the link with commercial strategy is weak. For people who understand the real technical and operational challenges facing companies as they pursue sustainability in their value chains, the limits of unilateral strategies are pretty clear.' Tuxworth, like many sustainability leaders, recognises that water is a resource challenge that requires a more pre-competitive and collaborative strategy because of the systemic nature of water problems.

For the health of your business it's absolutely worth thinking through not just the attitude towards water and the vocabulary around it, but also the nature of the risk. A general problem is that risk depends on people's perceptions. As an example, a study compared the deaths caused by kitchen germs and BSE (bovine spongiform encephalopathy – mad-cow disease to you and me), and domestic swimming pools and domestic weapons respectively. They noted that the 'risks that scare people and the risks that kill people are very different' (kitchen germs and swimming pools being the less scary but more dangerous in their respective cases). The study's authors note that risk could as easily be formulated as hazard + outrage, adding that adding that effective risk communicationdemands increasing outrage or urgency in accordance with the severity of the issue.

If we apply the formula of hazard + outrage here, there is very little sense of either of them concerning water scarcity or pollution. Water scarcity or pollution events tend to be un-dramatic and silent. If it's raining outside, it can't be too bad, right? The threat of water scarcity for example is often perceived as being in the future or being managed by 'those who control such things', unlike a terrorist attack, which is largely uncontrollable and unpredictable not to mention sudden. Accordingly, we associate terrorist attacks with high levels of outrage and perceive them as being a 'greater risk'. When hazard is high but outrage is low, people tend to under-react. More effective communication of how water impacts societies, economies, energy, people, businesses and the environment will be part of strategies that are geared towards action.

In 2008 we wrote a report entitled Investigating Shared Risk in Water. At that time we were using the term 'shared risk' to encourage companies to look beyond their factory walls to the watersheds in which they the factories were situated. Shared risk was our attempt to prepare the groundwork for new ideas around water stewardship, and to start challenging the role of companies in public policy debates. We felt then, as we do now, that if companies could better understand water risks more from a stakeholder and river basin perspective, we could more effectively advocate for better water governance. Get the governance right, and risk overall is reduced.

But shared risk does not imply that we share equal risk or even the same risk. Risk from the subjective viewpoint should ask 'risk to whom and of what'. For the wheat farmer, the danger may be consecutive years of below average rainfall. For the manager of an industrial plant the risk might be a shutdown of water during peak operation time. For a government, risks might include the increasing costs of accessing water for utilities and the implications of higher energy costs, or failing to deliver on economic growth and development pathways because of poor water management. Posit water challenges as shared and we begin to think about how to recruit interest, bringing those with common interests to the table. Shared vulnerability combined with effective communication can lead to a pooling of resources to solve problems.


(Continues...)

Excerpted from Business Strategy for Water Challenges by Stuart Orr, Guy Pegram. Copyright © 2014 Stuart Orr and Guy Pegram. Excerpted by permission of Do Sustainability.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents

Abstract and keywords

About the authors

Glossary

1. Introduction

1.1. From risk to opportunity – From ad hoc to strategy

1.2. What is different about water risk?

1.3. What is the state of our water resources?

1.4. What are we trying to achieve?

1.5. Appreciating water’s real value

2. What is business water risk?

2.1. Regulatory, reputational and physical incidents and definitions

2.2. Explore sector risk profiles

3. Strategic steps to developing a corporate water stewardship strategy

3.1. The process of developing a corporate water strategy

3.2. Mainstreaming the water strategy

3.3 Strategic framework for water stewardship

3.4. Specific considerations for the corporate water strategy

3.5. Some potential risk implications of external response and engagement

4. Going forward – Opportunities

Important initiatives and tools

Notes

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