New Tool Monetizes Growing Business Water Risk

In November CDP (formerly the Carbon Disclosure Project) released its 5th annual Global Water Report: From Water Risk to Value Creation.  The report analyzes responses from 174 (35%) of the largest 500 global companies (Global 500) to the CDP water survey.  One of the key findings: 68% of respondents are exposed to water risk that has the potential to “generate a substantive change in their business, operations or revenue.”  The sectors reporting the greatest exposure to water related risks are shown below:

Water Risk Sectors

Twenty-two percent of respondents report that water insecurity could constrain growth, and fully one third of those indicate that constraints could be reached in the next 12 months.  The top five risks drivers identified by respondents are

Water Risk Drivers

Digging deeper into the Consumer Staples Sector (food and beverage, personal and household products) illustrates that water risk is a problem companies are already dealing with.  Exposure to water risk in direct operations was reported by 77% of respondents; 77% also reported supply chain risk, the highest for all reporting sectors.  Water risk is not hypothetical, 45% of respondents reported detrimental impacts of water challenges in 2014.  The sector is responding to these challenges with over 80% setting goals to reduce water use or intensity and 52% requiring suppliers to report on water use.  Driving these actions are the opportunities to: improve water efficiency, reduce cost, and increase brand value (as reported by 45% of respondents).

Overall, the move to action is not as clear.  Though a majority of respondents report exposure to substantive water risk only 38% report that they are assessing that risk in their direct operations and supply chains.  Respondents reported to CDP that awareness of the problem is increasing and consensus is building around how to monitor and manage the issue.

Water Risk Monetizer

The Water Risk Monetizer, a new tool released by Ecolab, Inc. and Trucost may help build support for taking action to address water risk.  The Water Risk Monetizer is a freely available, online tool that enables not only the identification of water risks, but the cost implications of those risks.  As a financial modelling tool it adds another dimension of information to the water risk discussion that will enable these risks to be more concretely included in corporate-level strategic planning and risk mitigation activities.  Users enter facility-level information into the tool such as location, annual water use, production, etc. and the tool provides information on the financial water risk premium (in dollars) in one, three, five and ten year time frames.  Qualitative risk scores (e.g. High, Moderate) are provided for water scarcity, reputational risk and regulatory risk.  The Water Risk Monetizer has global coverage so it can be used to assess risk for direct operations and in the supply chain.