By Stephen DeAngelis
In Samuel Taylor Coleridge’s “The Rime of the Ancient Mariner,” the bard describes the distress of mariners floating upon a windless ocean under a withering sun and running out of supplies (including water). One of the most famous stanzas from that poem is:
Water, water, everywhere,
And all the boards did shrink;
Water, water, everywhere,
Nor any drop to drink.
More than one analyst has used that poetic imagery to portray the plight of the world’s population in the years ahead. We sit on planet covered by water and yet the predictions about the availability of useful water are dire. Such predictions concern governments, populations, and industries. Although there are a number of issues surrounding water (e.g., rising sea levels, droughts, floods, etc.), I want to focus on industrial water requirements.
“If climate change is the shark, water is its teeth.”
According to The Economist, “Water shortages, combined with reputational damage and regulatory overreach, could affect many hydro-dependent industries, from food production, mining and power generation to apparel and electronics. Colin Strong, [formerly] of the World Resources Institute (WRI), an NGO, says that though the private sector is trying to use water more efficiently, scarcity will be exacerbated by climate change, population growth and the greater water use that comes with growing prosperity. He quotes a pithy refrain common in environmental circles. ‘If climate change is the shark, water is its teeth.’ Heat and drought are leaving teeth marks everywhere.”[1] Although potential water crises are global, the Economist goes on to note, “The problem is not a lack of water per se. Climate change may make some places drier and others wetter. It is the uneven distribution of freshwater — of which fast-growing places like India are woefully short — that provide the conditions for a crisis. This is made worse by waste, pollution and the near-universal underpricing of water.”
Journalist John Engen insists that investors are carefully watching how companies deal with potential water problems. He reports, “The list of companies vulnerable to water-related disruptions is growing. By one estimate, some $15.5 billion worth of corporate assets have been left stranded or at risk by things like community opposition or regulatory changes triggered by water stress. Supply chain and logistical problems caused by water woes make matters worse.”[2] He adds, “About two-thirds of big corporations inadequately manage their water risks, according to proxy advisor ISS, while 69% of listed companies reporting to the Carbon Disclosure Project (CDP) said they are exposed to water risks with a potential value of $225 billion. With climate change, the numbers are expected to grow.”
One reason that water is the teeth of climate change is because access to life-giving water resources has been declared a human right.[3] When industrial requirements collide with personal requirements, unrest and political action are inevitable. Researcher Matus Samel explains, “The consequences of mismanagement of water resources on human health and prosperity are devastating. In our fragmented world this makes it all the more important to understand the impact of our declining shared water resources upon national and international stability and security. It is vital that global political and business leaders address the water global crisis at the highest levels.”[4] He adds, “The prediction of former World Bank vice-president Ismail Serageldin in 1995 that ‘the wars of the next century will be about water’ has proven only partially accurate. In the past two decades, military clashes between nations over water resources have been exceedingly rare, but internal water-related conflicts and tensions have been on the rise in recent years.”
The Way Ahead
Like climate change, addressing water challenges often requires cross-border cooperation. As Samel notes, “Political will at national and global levels is needed to foster water cooperation, rather than conflict, at a time of unprecedented global fragmentation.” Boston Consulting Group (BCG) analysts explain, “Whether there’s too much, too little, or it’s too polluted, the global water supply is in crisis. For more than a decade, water-related risks have led the World Economic Forum’s global risk assessment in terms of both likelihood and severity of impact on both people and businesses.”[5] According to BCG analysts, “Traditionally, governments and companies have taken a reactive, risk-based approach to water management, one that focuses on mitigating the economic consequences of floods and droughts but pays little consideration to environmental impacts. Now is the time to change this outdated approach to water management by investing more in the power of nature-based solutions (NbS), which protect and enhance ecosystem services, to help manage water with resilience and for the long term.” They suggest the following actions be taken by stakeholders in the public sector, the private sector, financial institutions, and non-governmental organizations (NGOs).
Public Sector: “Value water correctly through classification like the European Union taxonomy. Create an enabling policy environment for collective action, such as public-private partnerships and local NbS implementation consortiums. Transition to adaptive policies that enable NbS across infrastructure engineering, procurement, and construction. Stimulate private investment through blended financial solutions.”
Private Sector: “Develop water resilient business strategies. Harness the power of technology, including AI and big data, to identify new water growth opportunities. Measure, disclose, and report on impacts. Invest in NbS for water security to build supply chain resilience.”
Financial Institutions: “Engage with clients or investee companies on water risk and resilience strategies. Prioritize financial innovation to promote market-based mechanisms for NbS. Screen portfolios for water dependencies and opportunities for NbS. Build capabilities to identify and scale impactful water investments.”
Non-Government Organizations: “Integrate multiple values of water and prioritize NbS for water security such as ecosystems; water, sanitization, and hygiene (WASH); and disaster risk reduction. Identify locally led innovations. Generate guidance to improve NbS impact metrics for water security to demonstrate the multiple values of water. Improve capabilities to identify clear revenue streams for NbS and offer technical support to local implementing partners. De-risk NbS projects by convening stakeholders early in the project process and offer early-stage investment for NbS implementation.”
Concluding Thoughts
Engen notes, “Water is intensely local. Flood, drought, depleted aquifers, or water-quality problems can shutter factories or choke supply chains, damaging earnings. If residents get angry about how a company uses water, it can face regulatory repercussions or even lose its social license to use water.” The Economist agrees that the “local” nature of water problems exacerbates finding solutions. It explains, “The looming shortages still do not get the attention they deserve. As a heavily subsidized raw material, water is so cheap that many CEOs overlook it. A report this year by Planet Tracker and CDP, two NGOs, said that about a third of listed banks do not assess water risks in their portfolios. For shareholders, it mostly comes far behind carbon emissions as an environmental, social, and governance (ESG) concern. It is not a risk that can easily be squeezed into oversimplified ESG ratings. It is so dependent on local conditions that it requires myriad approaches. In the words of Will Sarni, a consultant, water is an enigma. ‘It’s a personal thing. It’s a social issue. It’s got a spiritual dimension.'” For many industries, access to water, like access to electricity, is a matter of survival.
Footnotes
[1] Schumpeter, “For business, water scarcity is where climate change hits home,” The Economist, 17 August 2022.
[2] John Engen, “Wall Street is paying more attention to the business risks posed by water,” Quartz, 8 May 2023.
[3] Staff, “Human Rights to Water and Sanitation,” United Nations.
[4] Matus Samel, “Davos, New York, COP and beyond: water in a fragmented world,” Economist Impact, 27 February 2023.
[5] Torsten Kurth, Dean Muruven, Sophie Dejonckheere, Arun Malik, Bart Geenen, and Stuart Orr, “Nature-Based Solutions to the Water Crisis,” Boston Consulting Group, 21 April 2023.
