Beyond carbon: why businesses need to wake up to water resilience

In 2004, Uruguay declared a new constitutional right: access to water. Yet earlier this year, fierce protesters questioned the sanctity of this right, demanding an answer to an important question: who really has this right to water, is it citizens or multinational corporations?

Companies consume water like people do, whether it’s using freshwater to cool down data centres, sterilise essential pharmaceutical equipment, or grow food. Yet this year Uruguay suffered the worst drought in 74 years, leaving millions of people without access to drinking water. So when Google reportedly announced plans to build a large data centre in Uruguay - which would require the equivalent drinking water of 55,000 people a day (7 million litres) to cool the centres - people protested and Google had to quickly reformulate their plans. Google has historically been a leader in tech for net zero goals, showing the complexity of this new climate landscape. This will not be the last of these stories.

Beyond consuming freshwater for operations and products, businesses also impact water through contamination and rerouting. Inversely, businesses are also impacted by evolving water conditions too: from floods, droughts, to reduced quality. Water management is therefore no longer a ‘nice-to-have’ or even a humanitarian right - it is business critical. Water risk is just as urgent to understand as carbon emissions - and businesses need to understand and manage their use - not only for climate justice, but also to manage their physical risks, stakeholder risks, and regulatory risks before it is too late.

Photo by 李大毛 没有猫

Water, water, everywhere, nor any drop to drink

Extreme weather events, such as droughts (water scarcity) and floods (water excess), not only impact water availability but also water quality. Water may be abundant but usable and available freshwater makes up only 0.5% of all water on earth. For every 1°C increase in the global average temperature, experts project a 20% reduction in renewable water sources, like lakes and rivers. When the water table drops significantly, water becomes more concentrated with salts and minerals which is costly to treat. There is an expected 40% gap between water supply and demand by the end of the decade: a huge threat to businesses. Climate change is the problem but unfortunately, in many parts of the world, water will be the messenger.

Three types of water risk

The growing water crisis presents material risks for businesses in the form of physical risks, stakeholder risks, and regulatory risks. Physical water risks such as floods and extreme precipitation have the most direct and costly impact on companies' operations and supply chains. There are countless examples of physical risks hurting businesses who aren’t prepared, from contaminated water shutting down General Motors’ engine plant in Michigan; to severe droughts in Panama leading to unusually long delays along one of the world’s most important trade routes, and to droughts in California, affecting the yield of 80% of the world’s almonds. CDP estimates that there is $301bn business value at risk.

Stakeholder risks disrupt businesses too. Local citizens are stakeholders, as seen in the fierce protests in Uruguay which may result in Google writing off the land that they had purchased for the new data centre. Investors are stakeholders too, and are increasingly using their influence and votes to pressure businesses into taking action on water risks. For example, Ceres, a leading sustainability investor group representing 9.8 trillion AUM expects companies to understand their exposure to water risks as well as understand the impact that they have on water quality, availability, and freshwater ecosystems.

Regulatory risks also matter. In response to water stress, policymakers and water managers are introducing regulations to protect water resources and optimise consumption. PepsiCo was issued a notice by the Government of Kerala to reduce their water consumption by 75% in 2017. More recently in 2021, Taiwan, a major semiconductor production hub was faced with government orders to reduce water use by 15%. Without proper planning, businesses may be unknowingly exposed to these regulatory risks, which may affect their access to and cost of water supplies.

Understanding your exposure to risk

Businesses first need to understand their exposure to water-related risks. Waterplan, a Giant portfolio company we originally invested in at seed stage, enables businesses like ABinBev, Colgate, and Meta to measure, monitor, and respond to the water-related risks that their direct operations and supply chain are facing. Unlike traditional approaches that provide a static, high level view of risk levels, Waterplan centralises satellite imagery, facility-level data, and AI-powered hydrologic and climate models to provide the most up-to-date insights on water. Waterplan also quantifies the associated financial impact of the risks and recommends mitigation approaches using their global marketplace of implementation partners. Other emerging businesses in the growing space of water risk include Floodbase (parametric flood insurance), FieldFactors (circular urban water management), Shayp (water management in buildings), and Kando (wastewater intelligence), among others.

The opportunities of water

Businesses should pay attention. Best practice water stewardship promises opportunities for attracting new capital and revenue. For example, implementing sustainable water practices has enabled AB InBev to access new types of financing, in the form of sustainability-linked bonds. Supply chain reliability matters too - and suppliers who are prepared will increasingly win contracts against those suppliers who aren’t prepared for how water risks will impact their operations. Consumers are taking notice too - and businesses' investments into water-responsible product innovation are starting to pay off. Unilever’s ‘Sunlight’, a dishwashing liquid that uses significantly less water than other brands, has outpaced category growth by more than 20% in a number of water scarce markets.

Water-related risks and opportunities may seem to only affect businesses such as agriculture, mining, or chemicals, but the reality is that water is used in and affects everything that we produce and consume. Water is the root and sustenance of all life. The risks of poor water management are mounting for businesses, and the planet, and the benefit of getting ahead of the curve is only increasing. This is not just a fundamental part of their sustainability strategy - it has a real impact on their bottom line. The time for businesses to manage their risk is now.