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Water Stewardship – a matter of business value and risk
Matthew Segur
Net Zero Water Session 1 – Drop for Drop: Net Zero Approaches for Water Quantity and Quality
October 23, 2013
Sustainability
What changed and why now?
•Environmental and
social performance
matters
•You and your supply
chain
Old paradigm New paradigm
•Abundant raw materials
•Cheap energy
•Limitless sink for waste
Sustainability drivers
•Cost savings•Source of innovation•Business continuity•Talent retention
Internal performance
drivers
Value stream drivers
External performance
drivers
•Customer interests and brand value•Value chain transparency•Industry collaboration
•Government regulations•Demand for transparency and sustainability
reporting•Shareholder resolutions•Social license to operate
Sustainability is no longer an option, but a business imperative
Why is sustainability a business opportunity?
•Revenue: new products/services, brand,
brownfields, carbon
•Risk management: transparency and reporting,
supply chain, license to operate
•Reduced operating costs: resource efficiencies;
materials, energy and water
Sustainability is value creation and innovation
The Global Water Condition
Water availability has declined significantly since 1975 and is expected to continue this trend
Extreme Scarcity<500
Scarcity500–1,000
Stress1,000–1,700
Adequate1,700–4,000
Abundant4,000–10,000
Surplus>10,000
Ocean/Inland Water
No Data
Water availability: 2000Water availability: 2025
m3/person/year
Water availability: 1975
Water withdrawals are predicted to increase by 50 percent by 2025
in developing countries, and 18 percent in developed countries.
47% of the population will face water shortagesby 2030
Urbanization requires significant investment in water infrastructure in order to deliver water to individuals and to process the concentrations of wastewater from both individuals and business.
“Over a third of Africa's 1 billion inhabitants currently live in urban areas, but by 2030 that proportion will have risen to a half…the population of some cities is set to swell by up to 85% in the next 15 years.”4
The rate of poverty alleviation is increasing especiallywithin China and India which will increase water consumption from always needing clean fresh water to wanting jacuzzis or private swimming pools.
“By one calculation, there are now more than 1.7 billion members of ‘the consumer class’—nearly half of them in the developing world. China and India alone claim more than 20% of the global consumer class, totaling 362 million, more than in all of Western Europe.”2
As human life expectancy increases and the birth rate continues to rise, human demands on the environment have increased exponentially.
“Freshwater is crucial to human survival and well-being, yet 1.1 billion people have no access to safe water supplies, and 2.4 billion lack access to basic sanitation facilities. It is estimated that two-thirds of the world's population, including 25 African countries, will live in water-stressed areas by the year 2025.”1
Business activity from industrialization to services continues to expand at rapid rate. Expansion of business activity requires significantly more water supply and sanitation.
“Virtually every industrial activity requires water. The likes of power-generation, mining, paper and drinks sectors are particularly water intensive. Non-industrial services, meanwhile, such as tourism and entertainment, can depend heavily on water resources as well.”3
Rapid Population Growth
Expansion of Business Activity Accelerating Rate of Urbanization
Rising Middle Class in Emerging Markets
As the expansion of the global economy progresses, several forces put increased pressure on fresh water and other natural resources
Water issues could have a material impact on city stakeholders – the private sector
Rising demand and limited supply could lead to higher and more volatile energy and water availability
Communities chain could levy taxes or surcharges on embedded water that increase a company’s delivered cost
Direct costs
Increasing regulations and
continuity of supply
Source of innovation
Reporting and product
footprinting
Reputation and Brand Value
Tightening local environmental regulations, particularly around water, could increase suppliers’ costs
Governmental restrictions on water withdrawals threatening water availability
Investors are increasingly demanding greater transparency – and quantification – of water related impacts
Conducting a product footprint (e.g., LCA, carbon footprint, or water footprint) can help companies understand and communicate drivers of environmental impact
Natural resource scarcity (whether energy, water, or any other input) serves as an additional constraint that can spark innovation
New business models may emerge to creatively address water and other environmental challenges
Rising public concern about water scarcity as consumers become more familiar with the issue could threaten corporate reputations, even when impacts are several tiers upstream in the supply chain
There is an opportunity to build a company’s brand as a good environmental steward through proactively identifying and addressing supplier’s environmental impacts in China
Stewardship
Physical, regulatory and reputational risks increase with water scarcity
Physical Risk
Temporary non-availability of water disrupts supply chain
Water scarcity drives up input prices (~2%-20%)
Temporary non-availability of water disrupts operations
Increased capital expenditure on water treatment, water extraction, or alternative technologies to circumvent water problems raises costs
Non-availability or scarcity of water required for using product or service limits growth
Regulatory Risk
Intensifying competition for scarce water constrains growth
Suspension or withdrawal of supplier's water license or discharge permits disrupts supply chain
Intensifying competition for scarce water constrains growth
Reallocation to more urgent needs during drought disrupts operations
Suspension or withdrawal of supplier’s water license or discharge permit disrupts operations and/or constrains growth
Non-issuance of water license or restrictions on use of particular products or services due to water intensity raises costs or checks growth
ReputationRisk
Competition with household water demand constrains suppliers' growth
Responsibility "by association" for suppliers' water pollution damages brand or reputation, hinders growth
Increased capital expenditure on wastewater treatment to meet or exceed standards
Competition with household demands, or pollution incidents, damages brand or reputation, hinders growth
Public outcry regarding water intensity of product damages brand, reputation, hinders growth
Impact on financial performance
Lost revenue from disruption of water supply
Higher costs from:
− Supply chain disruption
− Changes in production processes
− Capital expenditure to secure, save, recycle, or treat water
− Regulatory compliance
− Increasing price of consuming or discharging water
Delayed or suppressed growth, potentially impacting share price
Potential higher cost of capital for businesses that rely heavily on fresh water resources
Supply Chain Manufacturing Product Use
Water management to stewardship
Internal OperationsValue Chain
Business PartnersWatershed Stakeholders
• Consistent, high-quality supply can no longer be assumed given increasing drought and flooding
• Managing water as an input must extend beyond the unit cost of water to include business continuity, brand value, and regulatory considerations
• Complex supply chains cross watersheds and contain hidden water-related business risks
• Hidden risks in the supply chain magnify exposure to water risk
• Effectively managing water-related business risk through the value chain is paving the way for innovation and new business opportunities
• Effective long-term water stewardship occurs on the scale of the local watershed in partnership with local communities and NGOs
• Disclosure of water-related efforts allows companies to gain trust, build relationships, and mitigate tensions
• Watershed-level stewardship has strategic value for global business
Water Management
Focused on immediate, direct and indirect business costs of scarcity and efficient use of the
resource
Water Stewardship
Focused on long-term availability of clean water for
stakeholders in impacted watersheds
Companies are at different levels of maturity with respect to addressing water scarcity; stewardship is the most inclusive and
long-term approach.
Elements of water stewardship
FOOTPRINT• Direct operations: Measure water
withdrawals, recycling/reuse, wastewater discharges (quantity
and quality)• Indirect operations: Measure
supplier water use and discharges (quantity and quality)
• Measure water footprint of products
ASSESS RISKS & OPPORTUNITIES• Assess physical/operational,
regulatory, and reputational water-related risks (direct and indirect
operations)• Prioritize risks and develop a
mitigation plan • Evaluate and implement water-related opportunities (direct and
indirect operations)
GOVERN• Oversee water policy, strategy, or
management plan at board level• Develop concrete water-related goals
• Innovate and invest in water technology
• Manage brand and reputation• Establish water management
accountability through public policy and lobbying efforts COLLABORATE
• Identify stakeholder concerns (employees, suppliers, local
communities, governments and regulators, NGOs, other water users
(industry or company-level), customers, investors)
• Engage internal and external stakeholders on water-related issues
DISCLOSE• Disclose water-related information to
stakeholders• Publish water-related analysis in
financial reports• Audit/assure water-related data
• Be transparent in reporting
Water Stewardship
A step forward in one category improves water stewardship performance
Another view of stewardship
Preservation
Collective Action Innovation
Community outreach
programs to provide safe
drinking water
Technology to record water consumption
metrics
Watershed protection -
Water infrastructure repair
Water technology
funds
Benefits of water stewardship
• A comprehensive view of corporate water use can have significant financial impact (e.g., reduced potential for supply disruptions, capital costs to secure, process, and discharge water, and compliance issues)
• These benefits can be leveraged in the supply chain and in direct operations
• Historically, water management practices have focused on securing water supplies, and managing waste discharges
• Identifying reuse and recycling opportunities can reduce costs and diversify supply, mitigating risk in direct operations
• Sound water stewardship can align corporate and environmental goals
• Avoiding negative consumer perceptions can lead to increased revenues
• Water is a local issue and misuse of water resources can lead to regulatory or consumer conflict
• Considering operational and local community needs can maintain this license in the supply chain and direct operations, and support business continuity and brand value
Brand ValueBusiness Continuity
Innovation
Responding to water-related risks can mitigate risk and identify opportunities across a company’s value chain
License to Operate
Operational
Regulatory
Reputational
Risk Mitigated
Corporate Action
Collective action
Companies have engaged in innovative partnerships around water to protect and enhance their reputations
Coca-Cola WWF alliance goals and progress
Conserve 7 key watersheds
Improve operational water
efficiency
Reduce energy and carbon emissions
Reduce supply chain water use
Inspire a global movement
Working with governments
to change water
management practices
Halfway to achieving 20%
water efficiency
improvement by 2012
Energy and emissions
growth slowing but
absolute reductions will
be difficult
Working with growers to define and implement sustainable
farming
Participation in the CEO
Water Mandate
Brand value, operational resiliency and license to operate
Funding, heightened awareness, expanded
influence
PepsiCo – human right to water and value chain
Supply Chain Collaboration
In India, PepsiCo educated farmers on “direct seeding”, which reduces water use by as
much as 30 percent and saved more than 5 billion liters of water in 2009
PepsiCo Agrees to Policy Respecting Human Right to Water May 2009
PepsiCo is the first publicly traded, multinational corporation to create a policy in
support of the human right to water.In 2003, PepsiCo’s water-use license was revoked in Pudussery, India, because of claims that its bottling plants there were
over-consuming and depleting community groundwater, which is in conflict with the
Human Right to Water.
Other companies have found that partnering with local suppliers and communities can generate “shared value” between business and society
CORPORATE SHARED VALUE
(CSV)
Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the
communities in which it operates
Nestlé's supplier partnerships Diageo’s Water of Life program
The goal: Aspires to extend access to clean water to 1 million new people in Africa every year through 2015
Community involvement: Positive contributor to the stewardship of water resources through watershed protection and sustainable water management
Direct operations: Improving water efficiency and decreasing water pollution across bottling facilities and engaging directly with suppliers in water-stressed countries to encourage sustainable agriculture practices
Collective action: Working with others to accelerate progress on the water/sanitation Millennium Development Goals
The goal: Obtain a reliable supply of premium coffee for Nespresso by helping farmers break the cycle of low productivity, poor quality, and environmental degradation that limits production volumes
Working with growers: Provides advice on farming practices, guarantees bank loans, and helps secure inputs
Establishing local facilities: Measures coffee quality at point of purchase and pays premium directly to growers, cutting out the middle man
Conclusions
• Water risks and opportunities should be viewed differently than other resources (e.g., carbon)– Water is a shared resource– Water is local; it is not fungible – Water has economic, environmental and social dimensions, all of which must be
considered
• Water can have value well beyond its price, and that value varies by industry sector– For some companies it has reputational risk and corresponding brand value – For others it has regulatory risk and as such it is managed as a compliance issue– For many, it may be a combination of both
• Water stewardship requires collaboration with internal and external parties; building a water strategy is beyond risk management and includes engagement with multiple stakeholder groups
Point of view
Developing a comprehensive water stewardship strategy can position companies to effectively manage water-related
risks while also identifying key opportunities.
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