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

When companies think about risk, most of them don’t think about water. Historically, water has been available even in drought-prone regions, and flooding has followed fairly predictable patterns. But as the climate warms, the world begins to see more extremes — which usually means too little or too much water. Water scarcity can lead to wildfires, but there are other problems too: If the water table drops, the quality of the water decreases, often resulting in increased concentrations of minerals and salts that are expensive to dispose of and even render the water unusable. use. At the other extreme, more intense storms have made flooding a new risk in areas that were not previously concerned. Floods and droughts are now sudden, unpredictable events and increasingly hit areas in succession.

This growing change has caught big companies off guard.

Risks arise on multiple fronts. Companies in water-stressed areas face increasing risks of regulatory restrictions on water use, or complete loss of water rights. Last year, TSMC, the largest computer chip maker on the planet, had to haul water miles away to keep its chip manufacturing plant running when local water sources dried up. Canadian miner Barrick Gold has been forced to close the Chilean portion of its $8.5 billion Pascua Lama gold-copper mine over concerns it is drawing too much water from the local watershed. Water scarcity on the Colorado River threatens the water supply of more than 40 million Americans and food production in the rest of the country.

While warming is drying up some areas, evaporated water is being dumped in torrential rains elsewhere. A recent paper in the journal Nature predicts that flash floods may become more common in a warmer climate. Most companies pay for flood insurance, but the data and models they rely on are crude and rarely combined with any analysis of the actual impact of operations.

Changes in the natural environment are stimulating regulatory responses. The U.S. Securities and Exchange Commission (SEC) has proposed disclosure rules that could go into effect by the end of this year. Under the proposed rules, companies would be required to disclose the percentage of their buildings, factories or properties in flood-risk areas, as well as disclose the number of assets located in water-stressed areas and the total water usage of those assets.

There is no way to escape these global changes, but there are ways to understand and plan for them. Currently, many companies have no idea what their exposure might be, let alone what investors think about these vulnerabilities. They shouldn’t wait until disasters — or mandatory regulatory disclosures — force them to account for their vulnerabilities. Instead, they need to start collecting relevant data and proactively preparing for growing threats.

run dry

There are three basic sources of water: surface water such as rivers and lakes, replenished primarily by rainfall and snowmelt; groundwater in rechargeable aquifers hundreds of feet below the surface; and deeper, non-rechargeable aquifers, so-called fossil waters that have existed for thousands of years Even millions of years of history.

While changing rainfall patterns have caused droughts in some areas and floods 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 were depleting faster than they were replenishing. Another study predicts that by 2050, more than half of the world’s population will live in water-stressed areas. This trend will only worsen as climate change and population growth progress.

Groundwater is poorly managed in much of the world, and companies should not assume that their business is taking water from a replenishable source. One of the world’s largest aquifers, the Ogallala Aquifer, stretches from South Dakota to Texas, providing drinking water to 2 million people in eight states and irrigation water for the entire region. The large-scale extraction of water from aquifers began after World War II and has been accelerating. Scientists estimate that the region from central Kansas to southern Ogallala, Texas will run out of water in less than 30 years. Once depleted, they estimate it will take more than 6,000 years to replenish the aquifer through rainfall.

A version of this story is happening. As the global water crisis has infiltrated the public consciousness, companies have been taking action to emphasize their water stewardship. The problem is that without some regulatory oversight, it’s hard to know how effective these actions are, or whether they’re just about enhancing the corporate reputation. The focus of the upcoming disclosure rules is to provide some transparency in the face of green public relations campaigns that cover up the true story.

So what does this mean for the company?

Find the water level

The World Resources Institute, the World Wildlife Fund and our company, Waterplan, all offer water risk platforms to help companies gather the information they need for these disclosures. By integrating satellite data, regional watershed data and company consumption data, companies can better understand global and regional risks and quantify facility-level risks, including flood and drought risks, water scarcity threats, and reputational risks.

Currently, the world’s largest aggregator of corporate water use data is CDP, a nonprofit originally called the Carbon Disclosure Project, which distributes annual water safety questionnaires to companies and their investors as part of the Environmental Impact Disclosure System. Current protocols for measuring and reporting water-related risks are largely consistent with the CDP Water Questionnaire.

The most prominent advice on water disclosures comes from the Task Force on Climate-Related Financial Disclosures (TFCD) — these are what the proposed SEC rules would follow. These guidelines have also been used to develop regulations in the UK, EU, Switzerland, Brazil, Hong Kong, Japan, New Zealand and Singapore. The TFCD, established in 2015 by the G20 Financial Stability Committee and chaired by Michael Bloomberg, asks to understand what companies are doing to mitigate climate change-related risks, including water. TFCD reporting is mandatory in many countries.

Meanwhile, the Nature-Related Financial Disclosure Task Force was established in 2020 and provides an online portal to guide companies in reporting nature-related risks, such as freshwater consumption in stressed areas. This newer working group focuses on risks beyond climate change and is more concerned with water than the TFCD. It has released a draft disclosure framework it hopes will become the gold standard for reporting and managing environmental risks.

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

Today, there are many metrics, tools and frameworks to measure how companies impact nature. Mandatory disclosures of these impacts are on the horizon, so business leaders should familiarize themselves with the tools available, including the CDP questionnaire and software platforms that collect relevant data. You’ll need it soon, but it’s good practice to be prepared.

What the company can do now

Companies need an action plan, and they need it now. They can start with a few simple steps.

First, they should immediately assess their water quantity Impact and set water conservation targets based on local conditions. They can invest in systems to improve reporting and traceability of water-intensive inputs. There is a combined market for mitigation tools and services to implement cost-effective solutions—such as using collected stormwater, air-cooled condensate, and recycled wastewater—while returning any water drawn from rivers, reservoirs, or wells to the source .

Second, they should immediately assess their water quality impact and use the assessment to set targets and develop action plans to improve this impact, such as reducing the use of harmful chemicals, investing in recovery technologies and reducing pollutant emissions – especially POPs and heavy metals from natural ecosystems . For example, 80 percent of Bangladesh’s water is extracted from groundwater, in some cases drilled to depths of more than 200 feet. As a result, the World Bank estimates that as much as 17 percent of the country’s population is exposed to high levels of arsenic, salinity, and other groundwater depletion hazards.

Third, companies should be deeply involved in water management activities in the watersheds in which they operate by advocating for watershed protection, or supporting new water conservation and groundwater sustainability policies, such as reforestation and wetland conservation, to help recharge aquifers. In Cape Town, South Africa, which nearly ran out of water a few years ago, the city is reducing water-absorbing invasive species. Acacia trees in Australia alone are estimated to consume nearly a billion gallons of water each year that would otherwise seep into the Atlantis aquifer north of Cape Town.

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

While economic service sectors are less water-dependent than physical industries, few industries or manufacturing processes are immune to water risks. According to CDP, apparel and textile manufacturing, cotton farming, livestock farming, oil and gas extraction, and mining are the most water-intensive industries. If anyone needs convincing, CDP reports that water outages cost companies $301 billion by 2020 — five times more than it would cost to address these risks up front.

Water risk may not be your most pressing business issue right now, but in the near future it likely will be. It’s not necessarily easy to start tackling it now, but it’s only going to get harder — and more expensive — the longer you wait.

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