Water: Can’t Always Buy What You Need
By William Sarni 13 January, 2015
Sarni shares how business can secure the water they need to fuel growth as simply paying more for it won't work
This is a condensed article from “Fueling Growth: You Can’t Always Buy What You Need” Deloitte Review, July 2014 Issue 15, Deloitte University Press. The full article can be viewed here.
How do companies with ambitious global growth strategies secure the water they need to fuel business growth in a world where simply paying more for water will not work?
The answer resides in why and how companies align their water stewardship strategies to support their business growth strategies. This alignment is built upon two key actions.
Water stewardship strategies should support business growth strategies but two key actions required are well beyond most companies’ current thinking on water management
First, companies that depend on water would also benefit from proactively leading collective action initiatives with stakeholders across their value chain within the watersheds in which they operate. Second, companies that synchronize water stewardship strategy with growth strategy can benefit from considering and quantifying water’s full business value, moving beyond the price of water to take into account water’s various impacts on operations, value chain, brand, and growth prospects.
Actions in these two areas go well beyond most companies’ current thinking on water management, which focuses primarily on water efficiency and reuse and recycling within their operations.
Competition for water is growing more intense, as the steadily increasing world population and the industrialization of emerging markets puts the world’s finite water supply under greater strain. This increased competition for water, coupled with droughts and the impacts of climate change, effectively drives increased water scarcity, as there is less water per person – and per organization – available to meet growing needs.
Competition for water is growing more intense & climate change drives increased water scarcity yet companies’ ability to directly “control” access to water remains very limited
A key challenge for companies where water is an essential is that their ability to directly “control” access to water as a resource is very limited. This is because water is fundamentally a shared resource to which ownership cannot easily be assigned.
Public policy, regulations & stakeholder influence (e.g. the presence or absence of “social license to operate”) all impact a company’s ability to access water & as a result, limit its ability to “control” access to water.
Aligning water strategy with growth strategy: What is missing in the corporate agenda?
There are two major actions required to align water strategy with business growth strategy: expanding collective action and quantifying the business value of water.
1. Expanding collective action
One way to overcome the “tragedy of the commons” is through collective action by informed stakeholders whose aim is to sustainably manage a common resource, even if, in some cases, they sacrifice short-term interests to obtain a long-term benefit. To take the broadest view, the “collective” needed to sustainably manage water encompasses everyone; after all, we all need it to live and to support the health of our ecosystems.
Actions of others within watersheds directly impact its users…
…collective action is the only way to safeguard water’s long-term availability for business growth
More narrowly, the importance of stakeholder action and opinion is amplified in regions where water is scarce. Local populations in such areas are acutely sensitive to the uses—or misuses—to which the area’s water supply is put.
Moreover, the actions of others within the watersheds in which a company operates can have a direct impact on the business’s access to water. Add to this the intense scrutiny that water is beginning to receive from investors, regulatory agencies, governments, nongovernmental organizations, and other parties— that is now accelerated through social media—and the need for collective action becomes evident. Only by engaging with other stakeholders on water-related issues, and working with them to safeguard water’s long-term availability, can a company that depends on water protect its long-term growth prospects.
2. Understanding water’s value, not just its price
As long as water is essentially free, few business stakeholders will likely see a reason to invest in protecting this resource. When water costs money, on the other hand, businesses begin to pay more attention both to its price and to strategies for keeping it low. Factoring water costs into growth projections, however, is only a first step.
“The calculation of revenue at risk from current & potential business disruption provides a clearer view of the value of water than current or projected water costs”
Companies could benefit from calculating, to the extent possible, the current and potential business value at risk from water risks. This calculation should quantify the impact of physical, regulatory, and reputational risks related to water across the value chain. The calculation of revenue at risk from current and potential business disruption provides a clearer view of the value of water than current or projected water costs.
It is important to develop a quantitative understanding of the value of water within the context of what is required to sustain operations as well as future growth. The impact of water risks on business continuity across the value chain provides more insight on the value of water to a business operation than the current or projected cost of water.
By understanding the value of water in this way, leaders can address long-term water-related risks and make informed decisions about the investments necessary to support future business growth.
A “license-to-grow” model
Considering water as a scarce resource necessary for growth brings into sharp focus the particular issues organizations must face when operational or economic logic is insufficient to support business growth.
In water scarce situations business models change from addressing the issue at an “own company” level, to stakeholder level with a focus on risk
Where water scarcity is concerned, we have observed that firms generally follow the trajectory described by the maturity model. They change their business models to go from addressing the issue at an “own company” level, to addressing it at a stakeholder level with a focus on risk, to addressing it at a stakeholder level with a focus on growth.
Illustration of the maturity model and attributes of a “license to grow” mindset is provided below.
Managing water scarcity and driving growth: What are the critical business decisions?
Companies whose operations and growth depend on water should also be aware of where they fall along the stages of maturity outlined in “Fueling Growth: You Can’t Always Buy What You Need”.
Understanding where you sit on the maturity model can help frame the steps needed to align water strategy with business growth strategy
The extent to which water scarcity may drive changes to the company’s business model, and the extent to which the company engages beyond its core business operations to work with external stakeholders to manage critical water scarcity.
Understanding where a company sits on the maturity model can help frame the steps needed to address water risk and to align its water strategy with its business growth strategy.
For companies looking to leverage their water strategy to drive business growth, I recommend asking the following questions as they relate to the value chain:
- What or who do water prices depend upon?
- How likely are prices to fluctuate and why?
- What are the water scarcity risks common to all users?
- What water scarcity-related risks are particular to one’s own company?
- How severe are these risks to the way the company does business today?
- How severe are these risks to prospects for future growth?
- What is the value of water to the company’s business and growth strategy?
- Where will engagement with stakeholders increase the overall value of this resource to the firm (including increases in value driven by risk and cost reductions)?
Remember you can’t always buy what you need
You can’t always buy what you need, but with an understanding of the business value of water and an enterprise-wide strategy to engage with stakeholders, you may be able to secure a long-term supply of the water you need to support business growth.
- Water Stewardship: Actions Must Match Risk – Despite media & corporate acknowledgement of water related risks 58% of companies in CDP’s 2014 Global Water report do not have a public commitment to water. China Water Risk’s Dawn McGregor expands on actions needed in China and globally to match the risk
- China Water Risk’s 5 Trends for 2014 – With environmental risk cited as one of the top risks most likely to derail economic growth along with the banking crisis and housing bubble, check out our top 5 trends in water for the year of the Green Horse
- Business & Society: Building Trust – Given pressing societal issues, companies are now expected to lead the change across their business value chain. Edelman’s Ashley Hegland on why businesses need to reprioritize value to include such societal benefits to build & maintain trust or face reputational brand damage
- One Year On: H&M & Water Stewardship – H&M’s Sustainability Relations Responsible, Julia Bakutis updates us on their Water Stewardship programme one year on. Find out what they have done & what challenges lie ahead for H&M as a water steward
- Sink or Swim – As water risks rises in prominence we review whether more investors and corporates are taking action to mitigate risk and seek out opportunities
- Water Stewardship: A Stake in the Ground – There is no universally agreed definition of water stewardship, leaving companies unsure of what it is and what to do. Stuart Orr walks us through WWF’s latest report, A Stake in the Ground, an introductory guide for companies on managing multi-faceted water risks
- Philanthropy: Catalysing Water for All – Water philanthropy in China can play a catalytic role in ensuring water for all in Asia. Lisa Genasci, CEO of ADM Capital Foundation on why philanthropists should take more risk by supporting research, public education, pilot projects & advocacy
- Corporate Conscience: Beyond Charity – Why are so few companies effectively mitigating water risk? Is it time for the conscientious corporate to transition water from purely charity and compliance to a core business activity?
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