The 3 questions you need to ask about assessing water risk

The 3 questions you need to ask about assessing water risk

Do your company's risk assessment processes consider water risk for every major capital decision, as well as operational management and supply chain partner screening? If not, it is time to call a meeting to revise business risk assessment and management procedures.

The business case is now clear. For example, as quoted in the Ceres report "Murky Waters? Corporate Reporting on Water Risk" (PDF), the U.S. Securities and Exchange Commission homes in on material risks as: "Changes in the availability or quality of water … can have material effects on companies." JPMorgan's "Watching Water" report (PDF) states: "In many situations, the risk of business interruption due to water scarcity appears to be on the rise, making contingency planning more important."

A UN Global Compact CEO Water Mandate report explains that "inside the fence-line" approaches are inadequate: "The simple measurement of corporate water use and discharge does not provide a complete picture of a company's water risks or impacts. … As such, understanding and managing water risks requires companies to assess watershed conditions" (emphasis added).

Business examples spur new questions

Hydroelectric facilities face numerous questions about their future in areas facing drought conditions and climate change projections, as dam levels drop and turbines are above water levels. Nuclear facilities in Connecticut and France have had to suspend operations because the temperature of the ocean water used for cooling the facility exceeded specified levels.

A beverage company ended up with loss of its operating license for, and a stranded asset in, a bottling plant when it was forced to shut down amidst local resident activism critiquing the company's draw-down of the underground aquifer, among other issues related to water quality and quantity. Just last month, another bottling plant had to suspend operations due to water shortages.

Avoiding these operational disruptions, and stranded assets, cuts to the core of business risk assessment and underscores the need for inclusion of a new set of questions.

1. Are we considering water stress, and potential effects on our operations, in light of climate change-related changes in rainfall and potential increased frequency of drought conditions, as per reports and projections from the Intergovernmental Panel on Climate Change?

2. Are we assessing ambient temperature ranges for use of water in cooling facilities in terms of operating within an era of climate change where ocean temperatures can rise under extended hot summer conditions? What are the business implications if water temperatures rise and water required for facility and machinery cooling need to increase or be met in other ways?

3. Are water challenges in the region where we are considering siting of major new facilities, as well as competing water demands (agricultural, municipal) that could represent operational risks for existing sites or key suppliers?

 Omar Bariffi via Flickr

Use the tools to find the answers

Fortunately, there is clear guidance on conducting water risk and an ever-improving set of plug-and-play tools. For example, the CEO Water Mandate offers a growing set of guidelines and materials. In addition, Ceres has developed "Aqua Gauge: A Framework for 21st Century Water Risk Management."

For corporate leaders who like to operate at the leading edge of practice, there is significant opportunity to combine both tools emerging from the water risk assessment domain — such as those named by the CDP's Water Disclosure Request (PDF) — as well as analytical tools that relate to ecosystem (and watershed) structure and function, such as those laid out in a recent BSR report. An integrated water risk and ecosystem structure and function approach would enable for triangulation of findings, such as by using WRI Aqueduct, WWF Water Risk Filter and the Water Footprint Network's Water Assessment Tool.

Adding tools that consider ecosystem structure and function (but remain very simple to use, or even "plug and play") truly would be cutting edge, such as Oxford University's Biodiversity Institute's Local Ecological Footprinting Tool and WRI's Ecosystem Services Review methodology. Both are very easy to use (particularly LEFT, which is very straight-forward). Once strategies, plans and actions are in consideration, then companies can consider implementing the Alliance for Water Stewardship's Standard.

The pathways for conducting water risk assessments are increasingly clear. Corporate leaders now need to step forward and begin to adapt internal processes and protocols to better assess, avoid and mitigate water risk.

Isn't it better to know whether your company and operations face water risk, than to have a burning platform ignite in the form of an operational shutdown or stranded asset?

In the face of climate change and increasing water stress, the time is now.

Top image by Lightspring via Shutterstock.