Understanding Water-Related Risks and Opportunities
Understanding Water-Related Risks and Opportunities
Concerns about the world’s most precious resource -- water -- are growing, and businesses are increasingly taking note.
A recent survey with responses from 150 large corporations conducted by CDP Water Disclosure revealed that 39 percent of companies have already experienced disruptions in operations, increasing expenses, and other detrimental impacts related to water.
Although water risk is a significant concern, 62 percent of the responding companies also recognized that a water-constrained world could create opportunities to reduce operating costs with efficiency gains and generate new business in innovative water solutions.
As companies become more aware of the issues water presents to their business, they are quickly realizing these risks and opportunities are complicated and difficult to measure with the tools currently available. This complexity is driven primarily by two factors:
Water is local. Water risks vary from location to location. Physical attributes such as the abundance, quality, and variability of water change from place to place. Water regulations, competition over use, and other “non-physical” attributes are also different for every locale. Often these non-physical attributes are the ones that most impact people and companies.
One size does not fit all. Although all businesses need water to function, these needs can be very different for different companies. Certain industries, like semiconductor manufacturing, cannot operate without extremely pure water. Thermal power plants need large quantities of water to cool their boilers. The mining sector has to contain and treat the water it uses to avoid spreading pollutants. Companies in these and other sectors each face a unique set of water risks that call for a unique approach to risk management – an approach that works for one may be entirely inappropriate for the others.
Aqueduct, under development by the World Resources Institute (WRI), is a suite of tools that provides the context needed to understand, manage, and mitigate water risk. WRI, in partnership with General Electric and Goldman Sachs, has released a prototype version of the tool at the core of Aqueduct: the Water Risk Atlas. The Water Risk Atlas creates maps that illustrate the variations in water risk from place to place, and can be tailored to reflect the particular water related risks that different companies and investors might be exposed to. The Atlas prototype generates these water risk maps for the Yellow River Basin in China. In the future, WRI will expand the tool to include other economically significant and water-stressed river basins, like the Colorado in the western United States and the Ganges in India.
Water is Local
The Water Risk Atlas prototype contains a database of over 70,000 geographically-specific data points that WRI identified as affecting water risk levels. This database contains everything from advanced hydrological data to innovative analyses of the socio-economic and regulatory drivers of water risk. To maximize the reliability and accuracy of the Atlas, WRI used data from governments and other trustworthy, publicly available sources. The information in the database measures risk drivers across three categories:
- Access and Growth Constraints - risks from increasing water scarcity.
- Cost Risk - risks from deteriorating water quality, more stringent regulations, or increasing water prices.
- Disruption Risk - risks from poor water governance, increasing competition for water resources and social concern around water issues.
The Water Risk Atlas draws from this database to create a detailed map of overall water risk levels across the river basin. The risk maps generated by the Atlas are interactive – with a single click the tool will display detailed risk scores for any one of 133 distinct areas within the basin, illustrating risk levels relative to the average for the river basin.
One Size Doesn’t Fit All
Because different sectors and companies are vulnerable to different types of water risks, the Water Risk Atlas has a simple interface that gives users the ability to sort and rank the various drivers of water risk according to their priorities, and generate the customized water risk maps that are most relevant to them. WRI is working with water and industry experts to create standardized risk profiles for a series of water-dependent sectors, including power generation and beverage production.
The flexibility of Aqueduct makes it valuable for key actors addressing the world’s water challenges:
Companies can use it to inform strategic decisions on siting and sourcing, on mergers and acquisitions, and to identify opportunities to reduce operational costs and exposure to potential disruptions.
Investors can use it to understand water risk within their portfolios and identify opportunities to invest in solutions for sustainable water use.
Government officials can use it to inform spatial planning and infrastructure investment programs, as well as policies aimed at sustainable economic growth.
Looking Ahead: Completing the Picture
The Water Risk Atlas prototype is a critical step in fulfilling Aqueduct’s goal of providing the context needed to understand water-related risks and opportunities. WRI is looking to collaborate with companies and experts to expand and constantly improve Aqueduct’s suite of tools, including the Water Risk Atlas.
Ultimately, Aqueduct will provide companies, investors, and other key audiences with the information needed to make water-related decisions that make economic and environmental sense.
The original version of this article appeared on the World Resources Institute's website and is reprinted with permission.
Image CC licensed by Flickr user Wolfgang Staudt. Inset courtesy of WRI.