Water Scarcity: Growing Risks to Your Business

Advancing climate change is proliferating climate and resource-related risks for businesses of all kinds. The list of companies vulnerable to water scarcity-related disruptions – whether because they use water in their production processes or need it for secondary uses, like cooling data centers – is ballooning. A lack of water, and the potential reputational consequences of using water in drier communities, can have enormous impacts on operations. Businesses of all kinds should be aware of the risks posed to business continuity by growing water scarcity, both to understand their own vulnerabilities and develop strategies to mitigate and respond to risk.

The Scope of Water Vulnerability

The world is getting hotter, and individuals and businesses are using more water every day. Water is used for a variety of business functions. Corporate water usage breaks down into two general categories: agricultural water, used to irrigate crops and sustain livestock, and the much-broader category of industrial water, which is water used to fabricate, process, wash, dilute, cool, or transport a product.

A shortage of water is increasingly putting business operations at risk, as water necessary for manufacturing, heavy industries, construction, and the tech sector runs low. While some sectors are especially vulnerable – food, energy and apparel are the most exposed – the risk is indiscriminate. CDP (formerly the Carbon Disclosure Project) estimates that some $15.5 billion worth of corporate assets have already been left stranded by a disruption to water access triggered by things like community opposition or changes to water regulations as water scarcity develops. The potential risk is much larger: Of listed companies sharing data with CDP, 69% report they are exposed to water risks with a potential value of $225 billion. Lost business due to water scarcity will have impacts beyond lost profitability. The World Bank projects that some areas could see GDP growth rates decline 6% by 2050 if water-management practices don’t improve.

Mitigating Water Stress

Disruptions to water access can be costly. A Brazil drought in 2015 brought costs for General Motors’ manufacturing water needs up by $2.1 million, and its electricity costs rose an additional $5.9 million. In 2020, Taiwan Semiconductor Manufacturing Corporation had to truck water for miles to keep its chip fabrication plants running when the local water supply dried up, growing their water costs exponentially. Still other companies could be forced to abandon projects altogether: In Mexico, for example, residents of drought-stricken Mexicali, voted in 2020 to deny water permits for beverage company Constellation Brands, forcing the company to shift a planned beer export project from a nearly-finished brewery in that town to a new one in less-dry Veracruz.

The first step in mitigating any risk is understanding its scope – a task that has traditionally been difficult or low-priority for large companies given the hyperlocal, relatively low-cost nature of water resources. For businesses in the U.S., mapping their water risk could soon be legally mandated. This year, the SEC proposed new rules that would require disclosure of the percentage of assets located in areas of water stress along with those assets’ total water usage. New tools are cropping up to map these risks: Platforms, including those developed by the World Resources Institute, the World Wildlife Fund, Ecolab, Ceres and Waterplan, bring together satellite images, watershed data, and corporate usage data to create a full picture of a company’s or industry’s exposure. Last year, BlackRock mapped the locations of 80,000 properties owned by real estate investment trusts in 74 countries, overlaying them with water stress maps produced by the World Resources Institute to demonstrate that by 2030, 60% of those properties will be in water-stressed regions. 

There are several ways that companies can proactively mitigate their water risk. For many, modernizing equipment can be a first step. Ford, for example, reached a goal of using 30% less water per car by 2014 by installing updated equipment that included water meters, a dry paint system, and a waterless lubricant. When appropriate, some companies have begun using recycled, or “gray water,” for industrial uses and irrigation. Even offices can join in on water conservation by installing water meters and modern appliances to reduce water usage or recycle gray water for uses like toilet flushing. Addressing the energy mix employed by businesses of all types can also have an impact on water conservation; the production of traditional fuel sources uses up to four times the amount of water than the production of renewables, and switching to renewable sources can reduce a company’s overall water footprint throughout its supply chain. Some companies have adopted even more forward-looking water conservation strategies. Amazon, Google and Microsoft have made various pledges to replenish the groundwater used to cool their data centers, and Coca-Cola and PepsiCo have both initiated “groundwater recharge” programs in many of the countries housing their production centers. Like many areas of climate-related risk, addressing water scarcity is not simply a matter of corporate responsibility, but an urgent strategic necessity.