Water Scarcity, the Next Business Challenge and Differentiator

CO2? Try H2O.  Water scarcity will confront business with both its greatest challenges and most compelling opportunities in the next decade.  Changing millennia of human behavior and assumptions will not be easy:  most consumers in the developed world are used to paying almost nothing for access to water.  In other countries, the lack of access to clean water is a huge burden, just at a point at which more companies are investing there to find new sources and new markets outside of North America, Europe, and East Asia.

Now that many companies have tackled the low hanging fruit of increasing energy efficiency, water stewardship is the next large hurdle.  To that end, companies that often think of themselves as energy firms now need to behave like water management companies.  So what does this mean for investors and managers?

Clearly food companies have a role in the monitoring of water usage throughout their supply chains in order to remain viable companies.  Campbell Soup Company, for example, provides a template by which food and agricultural firms can work with everyone from farmers to consumers to optimize their water usage.  Coffee companies are cognizant of their companies’ enormous “water footprint” and are tackling the problems at the source.  But semiconductor manufacturers, the textile and fashion industries, and even energy efficient companies that manufacture hybrid cars, are all large consumers of water.

Nevertheless, water is still not on many companies’ radar, but it has sparked concern among pension fund managers and on Wall Street.  As Brooke Barton of Ceres points out, the largest financial firms are warning companies that they must disclose investors more about risks from water scarcity.  JPMorgan insists that many sectors are and will be affected by water’s tenuous future; UBS has warned that economies from California to China have stalled in part due to water shortages; and Goldman Sachs has a financial tool to help companies and investors recognize water “hot spots” in both their organizations and supply chains.

Just as energy can create pain at any point for companies, so goes the same for water.  More companies are partnering with NGOs like WWF to tackle problems in regions where people cannot afford to pay higher water rates and where governments could shut off the valve to water access at any moment.  Meanwhile consultancies like Deloitte are bolstering their staff to advise their clients on water issues.  And investors will expect financial statements like that of PUMA that include, among them, a line dedicated to the company’s total impact on water sources.  Wise companies are the ones that not only use water at the most optimal efficiency, but provide safe and clean sources of water in the regions in which they operate as well.

Leon Kaye is the Editor of GreenGoPost.com and contributes to The Guardian Sustainable Business; you can follow him on Twitter.