For some time I have been thinking about the apparent disconnect between ambitious business growth strategies and the realities of water scarcity. For example, many companies have robust global growth strategies which include growth in emerging markets where water scarcity and degraded water quality are prevalent. What is missing is how these growth strategies align and are supported by a water stewardship strategy. How do these companies secure the water they need to fuel business growth in a world where simply paying more for water will not work?
A key challenge for companies where water is an essential resource requirement is that their ability to directly "control" access to water as a resource can be very limited. This is because water is fundamentally a shared resource to which ownership cannot easily be assigned. Public policy, regulations and stakeholder influence (for example, the presence or absence of "social license to operate") all impact a company's ability to access water and, as a result, limit its ability to "control" access to water.
A few key inputs helped shape a "license to grow" water strategy. Two reports convinced me that many companies need to move well beyond a "water management" mindset and move to a water stewardship strategy with a focus on business growth. Even water stewardship strategies are mostly focused on "social license to operate" and not a "license to grow" strategy.
Corporate water management is not enough
The first input which shaped my thinking was the 2013 CDP Water Program report. Based upon the results of the 2013 water disclosure survey, the report indicates that "over 90 percent of these companies now have water management plans in place."
However, according to CDP, despite the vast majority of companies reporting that water represents a substantive business risk, most companies are primarily focused on managing water within their own operations. CDP noted that "water stewardship activities are notably lacking, potentially exposing their company and investors to risks that could be mitigated."
The second key input was the recent report by VOX Global and the Pacific Institute, "Bridging concern with action: Are U.S. companies prepared for looming water challenges? Consistent with the 2013 CDP Global 500 report, the VOX Global/Pacific Institute report states that "water challenges are not just a future concern, but a current problem that already affects many businesses."
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According to this report, 79 percent of responding companies claim that they currently face water challenges, while 84 percent believe they will face water challenges in the next five years. Survey respondents also made the connection between these challenges and their bottom line: Nearly 60 percent of responding companies indicated that water is poised to negatively affect business growth and profitability within five years, while more than 80 percent say it will affect their decision on where to locate facilities over that time period.
Dangerous disconnect between risk and action
However, many respondents do not plan to increase the breadth and scale of their water risk management practices. According to the report, "nearly 70 percent of responding companies said their current level of investment in water management is sufficient." This is inconsistent with the respondents' belief that water challenges "will significantly worsen in the next five years."
The report points to "a failure to adequately evaluate the true cost of water" as one potential reason for this disconnect, and further states: "Though survey respondents noted the importance of integrating water into their business strategy, it may be premature to assume that all have done so."
The reports from CDP and VOX/Pacific Institute suggest that despite concern about water-related business risk, most companies see little to no connection between water risk, stewardship strategies and business growth strategies.
What is missing? A "license to grow" strategy.
Issuing a license to grow
I propose that companies should synchronize their water stewardship strategy with their business growth strategy by considering and quantifying water's full business value, moving beyond the price of water to take into account water's various impacts on operations, value chain, brand and growth prospects. Second, companies that depend on water also would benefit from proactively leading collective action initiatives with stakeholders across their value chain within the watersheds in which they operate. Actions in these two areas go well beyond most companies' current thinking on water management, which focuses primarily on water efficiency and reuse and recycling within their operations.
Also, I propose that there are four stages of maturity in how companies link business growth to water availability, as shown in the following figure.
There are real opportunities to leverage water stewardship strategies to support business growth by thinking differently about water as a key resource. With an understanding of the business value of water and an enterprise-wide strategy to engage with stakeholders, you may be able to secure a long-term supply of the water you need to support business growth.
Top image of roots in water by Alexey Stiop via Flickr.