The Water Risks Companies Face, and How to Address Them
The Water Risks Companies Face, and How to Address Them
Water is an underlying resource essential to power the economy, yet it has rarely received the same level of attention paid to greenhouse gas emissions, despite the view from scientists that water scarcity will be exacerbated by climate change.
Some sectors are more vulnerable than others: Consider that electric power plants are responsible for 40 percent of freshwater withdrawals in the U.S. Meanwhile, agriculture represents about 70 percent of water use worldwide, and even more in developing countries.
But smart companies in every sector are finding innovative ways to address the physical, reputational, regulatory and litigation risks from an increasingly water-constrained world. Their efforts -- or lack thereof -- aren't going unnoticed as investors examine the ways in which companies in their portfolios use natural resources, manage the associated risks and move to seize related business opportunities.
"If you're a publicly traded company, your owners care about this issue," according to Brooke Barton, senior manager of corporate accountability at Ceres, the investor advocacy group that promotes sustainability as a means of achieving responsible business growth.
Barton recently examined how companies in water-stressed sectors are disclosing these risks and opportunities in the recent Ceres report, "Murky Waters: Corporate Reporting on Water Risk."
While the report focuses on disclosure, it also shines a spotlight on the best practices of the largest publicly-traded companies in these water-intensive industries, which include beverage, chemicals, electric power, food, homebuilding, mining, oil and gas, and semiconductors.
There tends to be a correlation between water risk and disclosure, Barton said, meaning that industries with sophisticated disclosure practices are more likely to view the issue as a core element of their businesses. For example, the mining industry received high scores in the Ceres report. Not coincidentally, mineral extraction often takes place in areas with great water scarcity.
"Consent is incredibly important for mining companies to achieve their production goals," Barton said. "We have seen some examples that have led to the loss of license to operate."
Beverage companies, which also scored well as an industry, have long recognized the reputational risks they face from their water-intensive business model. PepsiCo now has a policy that recognizes the human right to water, the only multinational company to do so.
"I think that is a really important statement," Barton said. "They're doing a lot of work on what that means in operationalizing that on the ground."
By and large, most companies view the availability of clean potable water as their No. 1 threat, Barton said, followed by regulatory risks, mostly related to wastewater discharge.Increased water stress, population growth, and economic development in emerging nations will lead to increased scrutiny from regulators in many sectors.
"The implicit and explicit costs of water are going up around the world," Barton said.
Using less water, however, can improve the bottom line. Water use reduction efforts at ST Microelectronics, for example, saved $119 million over a five-year period.
Here is a snapshot of three water-intensive sectors detailed in the Ceres report with a look at how leading companies are working to address the water risks lurking in their operations and supply chains.
A typical semiconductor plant uses between two to four million gallons of water per day, about the same needed to supply a city of 50,000 people. The water needed to rinse silicon wafers must be of high quality, but the wastewater can contain a slew of contaminants ranging from arsenic to nitric acid due to the type of chemicals used in the etching process. On top of these factors, many fabrication facilities are located in arid or semi-arid regions.
To overcome these water challenges, Intel has introduced a water management system that has cut the daily demand of its Arizona facility by up to 75 percent. This includes using more than 4.5 billion gallons of treated wastewater to run cooling towers and air abatement equipment, while also using an ultra-efficient water treatment facility that avoids using millions of gallons of water. Additionally, the company has partnered with various local communities in which it operates on projects that protect wetlands and replenish rivers and tributaries.
It takes an estimated 136 billion gallons a day to generate and cool steam for electric turbines, while fossil fuel-based electricity tends to be more water-intensive. The sector’s water woes also include discharges: it is responsible for the vast majority of water releases of arsenic in the nation, and is a major source of heavy metal pollution in waterways, according to “Murky Waters.”
To satisfy its water cooling needs in a parched region, Pinnacle West/APS uses treated sewage from seven Phoenix-area cities for use in two nuclear and natural gas power plants. The company’s Palo Verde water reclamation facility helps to preserve enough potable water to fulfill the needs of 75,000 homes annually.
Water plays a huge role in treating cutting and drilling equipment, and processing and transporting ore. Its processes can also play a large role in surface and groundwater contamination. As such, water often finds itself as the source of local conflicts.
The sector scored highest for overall disclosure. Alcoa reported a wastewater reduction goal of zero process water discharge by 2020, while Teck revealed that is has conducted a global water risk assessment to benchmark site use and efficiency and determine whether its employees live in regions without safe water or sanitation access.
Photo CC-licensed by Flickr user Lens'Photos.