Water: The new business risk

‘Water is the new Carbon’, this refrain is frequently heard in relation to the increasing awareness of water crises globally. What this means for companies is the immediate need to map and manage water risks, from both a business and environmental perspective, much in the same way that companies are now responding to carbon. Global management consultant McKinsey & Company recommends that companies should take three steps to identify, quantify and manage water-related risks and opportunities:¹

• Understand exposure across geographies and along the value chain and product portfolios;
• Look for solutions in operations and products – pulling efficiency levers but also thinking boldly about new opportunities to help customers and other stakeholders use water wisely; and
• Get involved in the wider debate to have a voice and help solve water challenges.

Yet, despite the increasing and varied risks facing companies that operate in water stressed environments such as China, few corporate leaders have emerged who systematically and strategically address the issue. There are several reasons for this, not least the artificially low cost of water and lack of incentive to achieve efficiency. Combined with a lack of awareness as to the severity and potential impacts of the crisis, companies have been slow to develop forward-looking strategies. For those companies willing to act, many are uncertain as to what approach and methodology to take in addressing a risk that is proving to be more complex to assess and manage than more familiar environmental concerns.

As the pressure on companies to address water risks gains momentum, a surprising number of initiatives, methodologies and tools are being developed by a variety of organisations including business, multilaterals and NGOs, often in collaboration. They cover a multitude of issues from water measurement and risk analysis to the development of strategic responses to risks and disclosure. While this is encouraging on a number of levels, it can be confusing for companies who want to start to address the issue in earnest. Recognising this, a number of expert groups have sought to distill the various initiatives and tools and provide guidance on how best to use them.

These pages attempt to consolidate information and insights for companies on various aspects of water risk management. Firstly, it provides an overview of industrial trends in water use and wastewater discharges in China, and then attempts to define the broad range of water-related risks that face companies now and into the future and highlights common approaches and aspects of water management including corporate water disclosure.