Does water stewardship lead to brand value?
Performance can be transparently communicated through certification, helping build intangible value.
Each of us spends a significant amount of time working with companies that are seeking a more strategic approach to corporate water stewardship performance. We are also in dialogue with companies that want to enhance brand value through credible and transparent water-related actions and claims. To a certain extent, consumer preferences for buying sustainable products, and desire for more transparency, inform corporate water strategy. These trends were a catalyst for us to write about the relationship between a corporate water strategy and brand value.
Before we tackle the question posed in the headline, let’s highlight the importance of brand value for a company. Brand value is part of intangible value. According to a recent study by Aon and Ponemon Institute, the value of intangible assets are about five times greater than tangible assets for most major businesses. This is about 84 percent of the total value of the S&P 500 companies.
According to the survey, in 2018, tangibles for companies in real estate and equipment comprised only 16 percent of company value, while intangibles such as intellectual property rights and reputation accounted for 84 percent. Because information technology companies appeared in the 1980s, intangible asset value has increased — it overtook the value for tangibles before 1995, when it was reported that intangibles represented more than twice their value.
What makes up intangible value? According to the research, there are eight types and five are related to intellectual property (35 types of intangible value grouped into eight categories). Of note for our discussion on water strategy is brand value, which consists of consumer perception (brand equity and social media influence). The eight types of intangible value are identified in the chart below.Everyone has an opinion about water: It is deeply personal. Consequently, proactive engagement and transparent performance disclosure and communication are expected.
The global trends that are driving our interest in how water stewardship strategies and performance enhance brand value are:
- The rise of brands with purpose
- Consumer preference for buying sustainable products and services, which is increasing the need for those claims to be credible and transparent
- A first wave of companies seeking to value water across their entire value chain (not merely the full cost of water but full value)
Increasingly, brands are speaking up on issues that are important to them, their consumers and other stakeholders (think of Dick's Sporting Goods on the matter of guns).
These "brands with purpose" are seeing success in the marketplace as they stake out a position on environmental and social. In addition, research suggests that consumers are buying sustainable products. Some statistics are provided below:
- 50 percent of the growth in consumer packaged goods from 2013 through 2018 came from products marketed as sustainable
- Products with a sustainability claim on the package were 16.6 percent of the market in 2018, up from 14.3 percent in 2013; they delivered $114 billion in sales, up from 29 percent in 2013
- Products marketed as sustainable grew 5.6 percent faster than those that were not. In more than 90 percent of the consumer packaged goods categories, products marketed using some sustainability component grew faster than conventional counterparts.
Consumers and stakeholders increasingly want transparency about how companies use water and how their operations, in turn, impact surrounding watersheds.
Companies that seek value creation in this space where water stewardship strategy and brand value merge have started turning in greater numbers to the Alliance for Water Stewardship (AWS). AWS is an international nonprofit based in Scotland that works collaboratively with its members and partners to achieve a water-secure world that enables people, cultures, business and nature to prosper now and in the future. Companies that want to move from simply managing water as an input to treating water as an asset to be stewarded are implementing the International Water Stewardship Standard (AWS Standard), which carries with it a credible, third-party certification program.
We know many companies say they are concerned about water scarcity and quality issues and the water-related impacts of climate change on their value chain as attested to every year by the World Economic Forum Global Risks Report 2019. The survey results for the 2019 report are no different from previous years: Water crises are listed as a Top 10 risk by impact on businesses.
But simply treating water stewardship as a risk mitigation strategy is insufficient and will not lead to capturing the true value consumers associate with "brands with purpose." Also, those companies that lead on water strategy focus not just on quantifying and mitigating water risks but also on having an impact well beyond managing their water footprint.
Even though many companies voice concern for water crises affecting their businesses, not enough act on those concerns. However, the first wave of companies truly creating value through their water-related strategies are doing so through the use of the AWS Standard.
Water stewardship performance can be transparently communicated through certification to the AWS Standard. The AWS Standard is built on a plan-do-check-act platform of continual improvement. Its five-step process acts as a strategic framework to move companies beyond simple risk mitigation and in-house water optimization, to true stewardship that links inside- and outside-the-fence-line actions, which is where brand value creation occurs at scale.True stewardship links inside- and outside-the-fence-line actions, which is where brand value creation occurs at scale.
AWS founding members such as WWF, The Nature Conservancy and Pacific Institute helped to ensure that any claims made in association with the AWS Standard were credible and conveyed through rigorous third-party certification.
One way that credibility and transparency have been built into the DNA of the AWS Standard is through the required stakeholder engagement within the five-step framework. While stakeholder input assists companies as they fine-tune their water-related issue radar and risk prioritization, it also builds a foundation for collective action on shared challenges and opportunities. This is the space where brand value is created.
Even though the AWS Standard is just over 5 years old, it has been used at hundreds of sites globally including by consumer-facing companies such as Nestle, MillerCoors, The Coca-Cola Company, General Mills and Proctor & Gamble.
Have these companies proven conclusively that use of the AWS Standard at high-risk sites has resulted in enhanced brand value?
That is a question for each, although each would attest that at key sites the AWS Standard has led to enhanced water stewardship performance and first steps in collective actions to address shared challenges and opportunities.
We know through limited consumer studies (PDF) that water-related claims with certain products such as fruit is extremely important. As a result, AWS is making available the use of an on-product claim for products produced at AWS-certified sites. Once this on-product claim is widely used, we can make more definitive statements about the connection between the AWS Standard and brand value.
The bottom line for us is that with respect to water strategy, companies need to set meaningful water-related targets and goals through transparent actions resulting from open, credible stakeholder engagements. This is where trust is built and ultimately retained.
Everyone has an opinion about water: It is deeply personal. Consequently, proactive engagement and transparent performance disclosure and communication are expected. The AWS Standard is the right step in this direction.
While storytelling has value, it is no longer adequate in a water-constrained world where everyone has an opinion about their water.