LONDON — As droughts and floods become more frequent and extreme around the world, companies from food and beverage makers to the mining and energy industries are beginning to scrutinize their operations for vulnerability to water problems that could increase their costs or disrupt production. The concept of “water risk” is catching on as a way of thinking about potential exposure not just to shortages or deluges, but also pollution, regulatory troubles or increases in the prices of water and water-dependent raw materials.
“Businesses manage risk, that’s one of the main functions of management,” said Adrian Sym, executive director of the Alliance for Water Stewardship, a group that promotes the responsible use of water.
In the case of water, “it could be ‘Do I have enough water to do what I need to do for this business? Is the quality of this water sufficient to enable me to do that?”’ and will local authorities remain willing to license a company’s usage, Mr. Sym said. “These are the things businesses are dealing with.”
Water supply stresses are intensifying everywhere from California to South Africa, the result of climate change, booming populations and the growing numbers of people moving to cities and adopting resource-intensive, middle-class lifestyles.
The World Economic Forum, in its annual report on global risks, published in January, ranked water crises as the third-biggest risk to stability in the decade ahead, behind fiscal crises and unemployment. Without changes in business practices, the demand for fresh water could be 40 percent higher than supply by 2030, according to the 2030 Water Resource Group, a public-private consortium that is housed within the World Bank’s International Finance Corp.
The first to feel the pinch, and to begin doing something about it, have been food and beverage companies, which depend heavily on water for their basic ingredients. Agriculture accounts for an estimated 75 percent to 80 percent of world water use.
“When we look at how our business operates, we use a lot of output from Mother Nature, and that stuff doesn’t happen without water,” said Jerry Lynch, vice president and chief sustainability officer at General Mills, whose brands include Cheerios, Pillsbury and Green Giant. “You don’t grow plants, cows don’t produce milk without water. So it’s pretty fundamental to our business.”
Clothing and other textile-based industries that depend on cotton — a particularly thirsty crop — or on water-intensive dying processes are also exposed. Paper production and mining, too, are big water users.
So is the energy sector. Water is key to many of the industry’s most basic processes, from coal mining and fracking, or hydraulic fracturing, to the cooling of gas, coal and nuclear power plants. Energy production accounts for 15 percent of all water consumption, the United Nations said in releasing a March report on water and energy.
The coal industry in particular has done little to address its heavy water usage, said Iris Cheng, a climate and water expert at Greenpeace International, based in Amsterdam.
The problem is acute in China, where coal generation is widespread and authorities want to locate new power plants away from cities because of concerns about air pollution, she said. That often means they end up in arid parts of the country’s west, draining water that is needed for farming and other purposes, Ms. Cheng said.
Many energy firms, Ms, Cheng said, are reluctant to say too much publicly about their water usage. “Because people realize they’re very exposed, they’re being very, very careful about how and when they report on their water risk,” she said.
The Alliance for Water Stewardship, backed by big companies like Nestlé and General Mills, as well as water and environmental groups including the Nature Conservancy and WaterAid, in April published detailed guidelines that businesses can use to assess their water risk.
Water issues are inherently local, and the new standard encourages business to work with other users in their area, from residents and small-scale farmers to government officials, said Mr. Sym.
While companies have generally regarded water as the public sector’s responsibility, many governments are no longer able to pay for the necessary infrastructure investments, said Thomas Chiramba, head of the fresh water unit at the United Nations Environment Program, which helped develop the alliance’s standard.
“Everyone has to chip in, because water is everyone’s business,” Mr. Chiramba said.
Not everyone is impressed by big companies’ talk about water awareness and responsibility.
Alex Money, a researcher at the University of Oxford’s Smith School of Enterprise and the Environment, who surveyed 60 of the world’s biggest companies, said he found that most of them had done more in the past to improve water efficiency than they planned to do in the future.
Mr. Money said that reflected the reality that most businesses trying to reduce water usage would have begun with the easiest, highest-return measures, meaning they stood to gain little from the next steps, which are likely to be more expensive and deliver less savings.
Still, Laurent Auguste, innovation and markets director at Veolia Environnement, a French contractor that provides water services, said he saw companies’ concerns about water issues moving from technical specialists and corporate social responsibility departments to the offices of top executives.
In Qatar, for example, Veolia is helping to eliminate all discharge from a Shell natural gas liquefaction plant, treating all wastewater so the factory can reuse it.
“We are at a time when pressure on the resource will lead people to be smarter,” he said. “But we are very much at the starting point.”
The companies taking water most seriously are those that operate in the developing world, said Adebayo Adeloye, a professor of water resources management at Heriot-Watt University in Edinburgh. While wealthy countries may suffer from drought too, the most acute problems are in poor nations that lack the infrastructure to cope, he said.
In places like Nigeria, some companies are trying to ensure their own water supplies by building mini-reservoirs or dams and installing storage tanks, he said.
“Where they know that nothing is guaranteed, companies are taking this very, very seriously and looking at ways they can make themselves self-sufficient,” he said. “People in those countries literally have turned themselves into mini-utilities because of the failure of the framework.”
In parts of Africa and southern Asia, big companies are also beginning to consider helping governments finance new water infrastructure in places where it would enable them to expand their businesses, said Mr. Money.
It’s “the idea of corporate water return as the counterpart to corporate water risk,” he said.
Over all, Mr. Money said, most companies only focus seriously on water if it is likely to have a clear impact on their bottom line. “No one cares more than companies about making a profit, so to the extent that it affects their business this stuff is for real,” he said.
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