Consider the following points:
Point 1: Sustainable water management means using water in a way that meets current, ecological, social, and economic needs without compromising the ability of future generations to meet those same needs.
Point 2: The U.S. population has doubled over the past 50 years, while water demand has tripled. By 2024, 40 states are anticipating water shortages.
Point 3: Carbon Disclosure Project (CDP) estimates that some $301 billion of business value is at risk due to water scarcity, pollution, and climate change – 5x greater than the cost of taking action now to address those risks.
So the question remains – How do we meet Point 1, while faced with Point 2 and what opportunities exist for companies given what’s at risk in Point 3?
Personally, I believe all three are interrelated. Forward-thinking companies having the opportunity to invest in technologies that reduce point-of-use consumption which can offer strong financial, market, social, and environmental returns. If usage cannot be reduced on site, investments can be made in environmental programs that help replenish local watersheds, putting more water back into the ecosystem than is withdrawn. For example, in 2021, Frito-Lay donated $539,000 to purchase 580-acres in the Upper Colorado River Basin and its water rights. This project is expected to replenish 145 million gallons a year.
Although water impacts the day-to-day operations of most companies, a one-size-fits-all approach clearly is not realistic. Every company should think through their business models and the potential impact of water regulation if, and when, the water crisis continues to expand. Those which lack a full understanding of water risk, hesitate in disclosing water risk, or postpone action, present risks for both communities and investors.
This pressure will only continue to grow as there is a greater realization that traditional ESG metrics don’t fully capture the impacts of water consumption and that more robust metrics may be developed in the future. Those companies taking a proactive approach to water conservation will not only be better positioned when this happens, but will also be able to contribute in ensuring that Point 1 occurs, mitigate risks in Point 2, while capitalizing on the opportunity in Point 3.
