Footprinting – Making its Mark in China?

By Alec Tang 30 June, 2011

Alec Tang of ERM on the growing trend of water footprint reporting in China.

The concept of water footprinting as a measure of water dates back to the eighties when the  life cycle assessment (LCA) approach to environmental management provided a method of assessing the environmental impacts of a product, including water use, according to a ‘cradle to grave’ approach.  It wasn’t until 2002 that A.Y. Hoekstra introduced the concept of water footprinting as an alternative water indicator, a concept that has since evolved into a powerful water accounting and management tool and is embodied in the relatively recent water global footprint standard (first published in 2009 and re issued in February 2011). The development of this standard has been an iterative process involving a network of organisations and the standard is most likely to continue evolving.  At the same time the International Organisation for Standardisation (ISO) is in the process of developing a standard on the principles, requirements and guidelines to assess and report water footprinting based on LCA.

Given these developments, what does water footprinting really mean to an organisation that recognises the importance of water resource management and importantly how are companies in China reacting to the challenge? In June, China Water Risk gained some insights from the perspective of a consulting firm working on the ground with companies in China to assess their water footprints.  Alec Tang, Senior Consultant within international consulting firm ERM’s Global Sustainability and Climate Change Practice provided views and comments on: water footprinting trends globally and in China; the implications of the 12^th five year plan’s water intensity targets; the business case; how to get started as well as the challenges; and what comes next.

An increasing diversity of industry sectors

On global trends, ERM points to an increasing corporate interest in the concept and practice of water footprinting.  Only a year or so ago, Tang points out, corporate water footprinting was being driven principally by the food and beverage industry, with companies such as Coca-Cola, Pepsi-Co and Cadbury undertaking such projects.

Today he notes that ERM is seeing companies across a diverse range of sectors such as mining, plastics manufacturing and nutritional product manufacturing taking an interest. As a result, the firm sees progress in the formalisation of water footprint methodologies and an increased appreciation of the need to contextualise water footprints at both geographical and sectoral levels.  Tang indicates that this has most clearly been demonstrated by moves to develop the ISO standard for water footprinting and continuing development of the Water Footprint Network water footprint methodology.

In China, ERM has seen an increase in corporate activity on the broader theme of integrated water management, with some clients engaging in water footprint related activities as the basis. Tang indicates that whilst to date much of this work has been initiated by international companies increasing focus on their supply chains, it is clear that as China’s water crisis deepens, more companies will need to undertake such footprint analysis to better understand water related risks.

Barriers to footprinting despite policy moves in the right direction

Noting that China is clearly adopting its most stringent water resource policies to date in its 12th Five-Year Plan Plan (see One-Size-Does-Not-Fit-All: Can Bottom-up Target Setting And Devolution of Control Deliver ‘Quality Growth’?)Tang believes that whilst these developments will undoubtedly place great focus on water management initiatives such as foot printing, there remains a major barrier to adoption on a large scale: specifically the relatively low cost of water in China, which is far below the actual cost of treatment and supply.  A more realistic cost of water that reflects supply and treatment costs, as well as the inherent value of water will he believes, will be the greatest drive of water conservation activity. For more on water pricing in China see “Falling up! Water pricing must meet true costs” China Water Risk’s Resources Section.

Providing business value

Moving on to the real value of water footprinting from the company perspective, Tang highlights several drivers, pointing out first and foremost that water footprinting provides a framework through which an organisation can better understand and quantify the direct and indirect impacts of water within its value chain.

• Measuring direct water use and risk mitigation: At an operational level water footprinting provides a company with an overview of its direct water use and therefore the opportunity to identify potential efficiencies in resource use that could be implemented to reduce the associated costs.  With low water prices in China,  the benefits may not be so apparent, however as water scarcity tightens, measuring and managing water will be fundamental in managing the water-related risks of operating in provinces where water supplies exceed demand.
• Inspiring innovation: The detailed review of operational water footprints leading to less water-intensive production processes within the production process helps to identify innovative solutions.
• Facilitating strategy and risk management: Water footprinting allows an organisation to identify aspects of its operations that may be at particular risk to water-related impacts, such as water scarcity or local stakeholder conflicts.  This may be direct water users within the organisation’s operational control, or may be associated with water embedded within supply chain inputs.  By better understanding and characterising these risks, the organisation can identify measures that can avoid, manage or mitigate the risks and operational impacts.
• Reputational and stakeholder benefits: It is clear that there is growing global interest in the corporate responses to ensuring the sustainability of water resources both from the general public as well as institutional investors.  The initiation of the Carbon Disclosure Project (CDP)’s CDP Water Disclosure (www.cdproject.net) in 2011 is just one example of investors requiring greater information on the water risks associated with their investments.  A water footprint provides the starting point for the development of corporate strategies focused on integrated water management and hence provides guidance.
• Addressing the water energy nexus: Corporate water sustainability assessments in China are often carried out as part of broader energy efficiency and carbon emission reduction assessments, since the relatively low cost of water compared with much higher energy costs means that it is often a secondary consideration.  In the broader context of resource efficiency however, there is close linkage between improving energy efficiency and a reduction in the corporate water footprint.

First steps and challenges

For companies wishing to take up the challenge and reap the benefits, what then are the first steps? Tang indicates that the starting point for any water footprint exercise should always be the clarification of the footprint scope and the intended goal of the footprinting exercise.  An understanding of what outputs the organisation is seeking and how it intends to use the data gathered is key to designing a footprint exercise that delivers these goals.

On the question of how far should footprinting extend, for example as far as supply chains? Tang logically explains that the scope of the footprint will be dependent on the nature of the industrial sector in which the business operates – an initial ‘scoping’ assessment of the organisational value chain will give a good indication of the major water using supply chain phases and hence the required level of supply chain assessment.  As an example, he indicates that for food and beverage processors, the main water use phase within their value chain will most likely be the raw food/crop growers and hence there will be a need to extend to this extent in order to get a meaningful water footprint that can then be used to address key water-related impacts and risks.

Tang cautions however, that for water footprinting to be relevant within the broader context of integrated water management, a focus cannot simply be placed on the volumes of water involved in the water footprint.  Importantly, the geographical context of water sources and questions of water scarcity/availability must also be overlain onto the volumetric considerations.  A small water user based in an arid environment for example may present greater risks to the organisation than a large water user located in a region with plentiful water resources.

On the practical side, the choice of methodological approach¹ i) the Water Footprint Network or ii) the developing ISO, will be determined by the intended scope of the water footprint, as well as the applicability of the methods to the organisation’s industry sector.

Reflecting on the challenges in China,   perhaps not surprisingly Tang points to the issue of data collection, given the novelty of the practice and the fact that historically low water costs have meant systems to monitor and measure water use are sometimes limited.  Having said this, he indicates that data gathering for water footprints provides a valuable opportunity to connect with key internal stakeholders and raise awareness of water management issues, so investing time and resource into this aspect of the programme can have multiple benefits to water sustainability programmes.

The opportunities are only just being realised

Looking forward Tang states that whilst significant progress has been made in the practice of water footprinting, the opportunities that can be accrued are only just being realised.  Water footprinting is, he notes, evolving from a principally accounting task to a powerful efficiency opportunity identification, impact assessment and strategic risk management tool.  To fully realise its potential however there remain a number of aspects that require further work and refinement, such as the formalisation of impact assessment methodology and ensuring the applicability of methodologies across diversity of modern businesses and industry sectors.  Finally, Tang points to the fact that alternative impact footprinting mechanisms are also emerging, such as biodiversity and ecosystem services footprinting and it is important to remember that a full understanding of sustainability impacts requires the review of the whole range of parameters – including water, carbon and biodiversity – not just a single metric.

¹ i) the Water Footprint Network method (www. waterfootprint.org) which focuses on the analysis of three ‘water types’ (green: rainwater trapped as soil moisture; blue: surface/ground waters; and grey: wastewater) and ii) the developing ISO water footprint standard founded on broader LCA techniques