The Climate Water Risk Nexus: Is Your Business at Risk?

Climate change is everywhere, and many businesses are beginning to wonder how this will impact their water risk. The United Nations water scarcity factsheet shows that by 2025, as many as 1,800 million people will be living in countries or regions with absolute water scarcity, and that two-thirds of the population could be living in conditions that are considered water-stressed. Whether business operations are located within a watershed that has sufficient supply to meet demand or not, companies should investigate more into their water requirements and sources to determine the risks that need to be addressed. 

How can you be proactive as a business to address your climate-related water risk? Let’s explore. 

For more information on water risk or for help on any of the four steps below, reach out to Antea Group about our Water Stewardship services.

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Step 1: Global Water Risk Assessment for Company Operated Facilities 

The first step is to complete a water risk assessment for any facilities whether owned or leased. Every business and company should evaluate its water risk. Water is a shared resource that impacts companies and the communities they are located in across the globe, big or small. Without water, it is essentially impossible to continue business operations. 

Assessing water risk for businesses can be challenging, especially since water is often not equally material across the value chain. Water risk is defined by the CEO Water Mandate as “the possibility of an entity experiencing a water-related challenge (e.g., water scarcity, water stress, flooding, infrastructure decay, drought).” It is important to assess a company’s water risk, specific to their operations and supply chain, as there are no two locations in the world that have the exact same combination and intensity of water risks.  

When determining the water risk for a facility, it is essential to look beyond just water stress and consider other risk indicators (e.g., water quality, interannual and seasonal variability, extreme weather events, drought). The correlation between water and climate change is inseparable, as climate change risks cannot be assessed without investigating water risk and water risk indicators are affected by climate change. 

Consultants can work with the client’s environmental specialists, sustainability leads, or internal water teams to perform a water risk assessment. The initial water risk assessment predominantly utilizes the World Resources Institute’s (WRI) Aqueduct database, but can also include other databases such as the World Wide Fund (WWF) for Nature’s (previously named World Wildlife Fund) Water Risk Filter.  

Subsequently, the facility locations are run through these databases to extrapolate the results, then the data is compiled into an Excel workbook that can be easily navigated by different stakeholders.  

A unique differentiator for our own water services at Antea Group is our extensive network of environmental partners through the Inogen Alliance. Through this partnership and collaboration, we are uniquely able to validate the data pulled from WRI and WWF. Our partners offer local insights on physical, regulatory, and social/reputation risks and can assess water stress at a granularity that may otherwise be overlooked by large databases. 

Step 2: Identify Priority Areas  

Based on the results of the Global Water Risk Assessment, consultants can work with clients to determine where water is most material within their own business operations and where they should prioritize their water stewardship efforts. Generally, facilities with the highest water usage or the most critical operations are considered priority areas.  

Step 3: Expand Water Risk Assessment to Overall Supply Chain  

Water is not equally material across a company’s value chain. Performing a water risk assessment on a company’s direct operations does not account for how water may be indirectly used outside of a facility’s four walls. It is important to investigate where raw materials are sourced, how they enter a company’s operations and are used, as well as where and how the byproducts are disposed of.  

Supply chain activities can include farming, refining, designing, manufacturing, packaging, and transportation. Companies can use their influence to promote water stewardship to the different stakeholders in the supply chain. This could look like a food company determining the water footprint of their raw product, such as chicken or beef, in a Water Risk Assessment. 

Step 4: SVA (Source Vulnerability Assessment) on Highest Risk Locations  

Once a Water Risk Assessment has been performed, a company can determine which locations are presenting at the highest risk and where they should focus their water stewardship efforts to drive real momentous change. The next step is to perform a Source Water Vulnerability Assessment (SVA), where water-related risks are analyzed outside of a facility’s four walls and expanded to the larger watershed and its stakeholders. 

An SVA identifies and assesses potential risks that could jeopardize water availability or water quality. Those risks are assessed from different angles, such as physical, environmental, social, political, economic, and regulatory, as well as the clients’ perception of how these risks could potentially impact business operations and production. The assessment will result in a prioritization of business vulnerabilities, in addition to various collective action and engagement opportunities. This exercise helps inform clients about watershed conditions, water monitoring, and proactive strategies to address changing conditions surrounding their operations. 

What This Looks like in Real Life  

Beverage companies rely heavily on water as it makes up most of their product as well as needing substantial amounts of water in their manufacturing process. Since water is the main ingredient for these companies, the beverage industry undeniably leads in Water Stewardship efforts. These companies then may be adversely impacted by water stress and water scarcity, where water availability may be declining, while the overall demand is increasing.  

As detailed in Deloitte’s report on business risks related to water, some leading beverage companies in the United States and India have had their social license to operate threatened or even revoked because their water usage was in direct conflict with the needs of the public. In this example, priority focus areas for a beverage company may be specific to water availability in the greater watershed, how local regulatory frameworks allocate water within the community, and how the public views industry water use in the region. 

The beverage industry has navigated a difficult shift in perception through understanding the value of water and how critical it is not only to industry, but communities. Antea Group leads a consortium industry group called BIER (Beverage Industry Environmental Roundtable), which is a coalition of global beverage industry leaders committed to improving and increasing sustainability in the beverage industry and beyond. Along with Antea Group’s experts, BIER members serve as a technical resource and knowledge base by collaborating on research and publications that help others tackle big issues like water stewardship, benchmarking, greenhouse gas emissions, and more. Now is the time for other industries to follow suit and not wait for the socio-political pressure to begin implementing water stewardship and resilience strategies.  

How Can I Put These Results into TCFD Framework? 

Whether discussing water risk or climate risk within a company, determining the effects of the quickly changing conditions can be challenging. Assessing the financial risk associated with physical, regulatory, and social risks can support informed decision-making.  

The Task Force on Climate-Related Financial Disclosures (TCFD) is a program led by the Financial Stability Board (FSB). The TCFD creates a standard through which companies publicly disclose climate risks and opportunities. The goal is that financial risks and opportunities related to climate change become an integrated part of company-wide risk management and strategic planning processes. The TCFD is currently voluntary, but regulatory bodies around the world (including the SEC in the U.S.) are considering mandatory climate-related disclosures. 

The TCFD focuses on chronic regulatory risks, acute physical risks, regulatory transition risks, and market transition risks. These risks also correspond with water risk indicators such as water scarcity, frequency of severe weather events, and even water quality regulations. Since there is a large overlap between water and climate risks, it is efficient to investigate both by performing a water-climate risk assessment.  

Why You Should Act Now for Your Company 

The world is increasing its focus on climate change and how it may impact governmental bodies, businesses, and overall quality of life. As water is a key to climate change adaptation, it is effective to assess both climate and water risk indicators together to determine business risks more accurately.