Water related risks include:
- Severe flooding
- Water pollution
To give this more credence, water is ranked first when compared to issues such as the spread of infectious diseases and weapons of mass destruction. (http://www.firstclimate-climateneutral.com/gb/press-news/news/article/water-crises-ranked-as-no-1-risk-by-wef-survey/).
South African companies have to date been a little slower than the international norm in recognising and taking actionable steps to address the risks of water to their businesses. The overall water management within a company, the access to water as a resource, and lack of research, and development with respect to waste water, are critical risks which need drastic attention. However, with a dedicated approach to understanding these risks, opportunities can be created.
Thus, business and society has to take the necessary steps to understand the current and potential risk of water, and its availability. There needs to be an in-depth analysis on what the real demand is, the ability to meet this demand, the ability and infrastructure to deliver on this demand without breakdowns, and, the ability to strategise a way forward to cope with the increases in demand pressures.
APPROACH TO MANAGING WATER AS A MATERIAL RISK FACTOR
Water is seen as something which you simply get, consume and then let it go down the plug…..with no other thought of the process.
But this cost and risk is based on the assumption that water is abundant and will continue to be readily available. Sadly this is not the case. The visibility of this risk needs to be addressed as a critical material factor to many business sectors.
World water consumption statistics, as compiled by the United Nations, show that freshwater withdrawals have tripled over the last 50 years. Demand for freshwater is increasing by 64 billion cubic meters a year (1 cubic meter = 1,000 liters) (http://www.worldometers.info/water/).
Compounding this effect, is that of extreme weather events, and its impact on water availability as a primary source of consumption for drinking, and a secondary for industrial and manufacturing use.
The management and future planning of water as a material factor thus needs to be viewed in a circular approach. This combined with materials, waste and energy will form part of having the sustainable future of a business understood and integrated.
When comparing the circular approach to the linear approach (as depicted in the previous two diagrams), the circular approach provides a whole systems thinking view, and affords a creation of shared value for the business and community – thus a sustainable approach.
CDP WATER PROGRAM (CDP Water Program)
The Carbon Disclosure Project’s (CDP) Global Water Program is looking to highlight the importance of the risk of water to businesses across the globe. The 2014 report specifically makes mention of the need for companies to improve their water stewardship, and for companies to show a better understanding of the current risks at their respective river basin levels (CDP South Africa Water Report 2014).
The CDP Water Program 2014 also indicated that from the South African companies who responded, 90% acknowledged that they were exposed to risk with respect to water.
The CDP Water Program further serves as a tool by which companies can be viewed in their performance with respect to Water risks and understanding. In particular, asset managers and investment companies consider the submissions of companies on the CDP Water Program. It further helps investors see which companies are planning and taking actionable steps to mitigate water risks and identify new opportunities.
Submissions for the CDP Water Program are 30th June 2015.
So, we need to change our thinking to go from seeing the cost of water as a monthly bill, to the cost as being able to continue business without water.
The 2014 Report listed globally that the response rates by sector showed the best being Utilities (74%), Materials (73%) and Health Care (72%). However, the worst responding sector was the energy sector (42%)
REAL COST OF WATER
Historically, business has viewed the risk of water in a direct and linear manner where the cost of water is calculated from a monthly utility bill.
- But is this the real cost?
- Is it simply the Rand figure at the bottom of the bill?
Business needs to view the impact of water as a risk and potential cost which needs to be clarified. Imagine water supplies being disrupted, and businesses not having access to water for a few hours, or even days.
Ask businesses in Gauteng, because 2014 was a year where they did not have to imagine – it was a reality! Once you do not have water (no matter how long the disruption is for), you cannot make it up. You have experienced a loss, and it will simply be compounded. But sadly, this is not simply a risk, but a cost to your own businesses operations.
Businesses are, in most cases, dependent on supply chains. The impacts of water on supply chains suddenly influence business risks and costs. How aware is your business to the impacts of water on your supply chain? Do you have a strategic plan to address this?
The Kwa-Zulu Natal North Coast is currently experiencing a severe drought – something not totally appreciated by the broader South African business community. This drought is leading to a significant decrease in sugar crop yields, which is now impacting on businesses who depend on the supply of sugar in the Food Products sector, which is part of the Consumer Staples sector.
An example is where the Umzimkhulu Sugar Mill in KZN, which will be closed for 2015. The implications are that sugar cane growers will need to transport their cane to Sezela Sugar Mill. While this may seem to be a localised problem for the cane growing community, consider the following:
- Reduced cane supply for Food Sector companies
- Increased prices due to increase in demand, and decreased supply
- Possible effects on Consumer Price Index (CPI)?
- Supply Chain risks and insecurities for the Food Sector
- Social impact on communities who rely on the cane to simply live
WHERE TO FROM HERE?
So while there is reality as to the risks of water, be it visible or clouded in uncertainty, business needs to be taking pro-active steps to understand what their current exposure to water risk is.
- Audit and understand your current risk to Water
- Direct impacts
- Water usage
- Water costs
- Water efficiencies
- Water alternates
- In-direct impacts
- Supply Chain
- Basin Risks
- Climate Adaptation Plan and Strategy
- Map your facilities and locations according to the basin supply and source
- Develop Water Program and an Action Plan to deal with
- Direct impacts
- In-direct impacts
- Manage the Action Plan
- Continued on-going management with a Water Program
- Direct impacts
From Water Risk to Value Creation – CDP Global Water Report 2014
Blog by: Angus Ryan