How companies are coping with water risks

With at least 60 percent of the United States now experiencing drought conditions, companies are focusing more than ever on intelligent water usage. They are opting to conserve and to work with their watershed stakeholders to keep costs down and avoid potential compliance and reputational problems.

The price of water has jumped an average of 18 percent since 2010 and 7 percent over last year in 30 major cities -- the 20 largest ones plus 10 regionally representative ones, according to Circle of Blue, a water research and information organization. Rates have risen highest this year in Chicago, by almost 25 percent.

Water rates are rising faster than inflation in the United States, not to mention faster than those of most other utility services, including gas, electricity, and telephone, said the Institute of Public Utilities at Michigan State University. Prices for garbage collection and cable television are increasing about as fast as water, the institute said.

“From a CFO perspective, this hits a number of key issues,” said William Sarni, practice leader for enterprise water strategy with Deloitte Consulting. “It can affect financial performance, growth strategies, emerging-market strategy, and supply-chain management. CFOs need to pay attention.”

A specific up-front issue is continuity: ensuring you have enough water to run your business over an extended period of time and managing that issue, noted Sarni. Some companies that are good stewards of water as a resource have seen their brand value enhanced, he said, and the converse also is true. “Reputational risk and brand value are two sides of the same coin, so if you don’t pay attention to it, you risk that it will impact your brand and thus your ability to operate,” said Sarni. Industries that depend on water to produce their product, such as beverage companies, have been out in front of this issue for some time.

To protect themselves, companies must first understand how much water they are using. “Water footprinting is not just direct usage, or how much is being used within a manufacturing or bottling facility,” said Sarni, “but also what’s being used throughout its supply chain.” That is as true for apparel companies that rely on the agricultural sector as it is for food-and-beverage companies. Companies also must pay attention to where they are using water, he notes, emphasizing that the availability of water is very much a local issue.

Companies are now researching how much water they are using within a particular watershed, or a land area where all water that is under it or drains off it goes to the same place. “Every watershed is different,” said Sarni. Only some of them are in areas experiencing water stress or scarcity. Companies should take heed of not only where they have operations but also where members of their supply chain do. While a beverage company, for example, may have a bottling plant in an area that is not experiencing water stress, agricultural and other suppliers may be seeing the opposite. Make it a point to know what suppliers are doing to quantify the risk, he advised.

Next page: What water risk looks like