Harvard
Business
Review
Business And Society
From Droughts to Floods,
Water Risk Is an Urgent
Business Issue
by Jose Ignacio Galindo and Nicolas Wertheimer
November 09, 2022
Honk Sorenson/Getty images
Summary. As climate change advances, floods and droughts are now sudden,
unforeseen events that increasingly hit areas in quick succession, and this growing,
variability has caught major corporations unprepared. New regulation is forcing
companies to confront this growing risk. Companies need to understand their
vulnerabilities and plan how to address them. They should start by assessing their
water quantity impacts and setting water use reduction targets that are informed
by local conditions. Second, they should assess their water quality impacts and
use this assessment to set targets and develop action plans to improve that,
impact, such as reducing the use of harmful chemicals, investing in recyclingtechnology, and reducing pollutant discharges. Third, companies should engage
deeply in water stewardship activities in the basins in which they operate by
advocating for watershed protection, or by supporting new water conservation and
groundwater sustainability policies. Finally, companies should ensure that water-
related risks and opportunities are fully embedded within corporate governance
and decision making. close
When companies think about risk, most of them don’t think about
water. Historically, water has been available even in areas prone
to drought, and flooding followed a fairly predictable pattern. But
as the climate warms, the world is beginning to see more extremes
—and that often means too little or too much water. Water
scarcity contributes to wildfires, but other problems, too: As the
water table drops, the quality of the water degrades, often leading
to increasing concentrations of minerals and salts that are
expensive to treat or can even make the water unusable. On the
other extreme, more violent storms are already making flooding a
new risk in areas that didn’t worry about it before. Floods and
droughts are now sudden, unforeseen events — and increasingly
hit areas in quick succession.
‘This growing variability has caught major corporations
unprepared.
Risks are appearing on multiple fronts. Companies in water-
stressed areas face increasing risk of regulatory restrictions on
water use, or fully losing access. Last year Taiwan Semiconductor
Manufacturing Corporation, the largest computer chip maker on.
the planet, had to truck water for miles to keep its chip fabrication
plants running when the local water supply dried up. Barrick
Gold, a Canadian mining company, is being forced to close the
Chilean portion of its $8.5 billion Pascua Lama gold and copper
mine because of concerns that the mine draws too much water
from the local watershed. And a water shortage on the Colorado
River threatens water supplies for more than 40 million
Americans and food production for the rest of the country.While the warming climate is drying up some areas, the
evaporating water is being dumped in torrential rains elsewhere.
A recent paper published in Nature predicted that flash floods are
likely to become more common in a warmer climate. Most
companies pay for flood insurance, but the data and models they
rely upon are coarse and are rarely integrated with any analysis of
actual impact on operations.
‘The changes to the natural environment are spurring responses in
the regulatory one. The U.S. Securities and Exchange Commission
(SEC) has already proposed disclosure rules that could go into
effect by the end of the year. Under the proposed rules, companies
will be required to disclose the percentage of their buildings,
plants, or properties that are in areas at risk of flooding and to
disclose the amount of assets located in areas of water stress along
with those assets’ total water usage.
‘There’s no way to escape these global changes, but there are ways
to understand and plan for them. Right now, many companies
have no idea of what their exposure might be, let alone how
investors might feel about those vulnerabilities. They shouldn’t
wait until disaster — or mandated regulatory disclosures — forces
them to make an accounting of their vulnerabilities. Instead, they
need to start collecting relevant data and proactively preparing to
address the growing threats.
Running Dry
‘There are three basic sources of water: surface water such as rivers
and lakes that are replenished primarily through rainfall and
snowmelt; groundwater in replenishable aquifers a few hundred
feet below the surface of the earth; and deeper, non-replenishable
aquifers with so-called fossil water that is thousands if not
millions of years old.
While changing rainfall patterns are causing droughts in some
areas and floods in others, groundwater is quickly become a
pressing concern.Astudy that measured groundwater from 2002 to 2017 found that
over half of the world’s major aquifers are being depleted faster
than they are being replenished. By 2050, another study
predicted, more than half of the world’s population will reside in
water-stressed areas. The trend will only worsen as climate
change and population growth progress.
Groundwater is poorly managed in most of the world, and
companies shouldn't assume their business is drawing water from
areplenishable source. One of the world’s largest aquifers, the
Ogallala Aquifer, stretches from South Dakota to Texas and
supplies drinking water to more than 2 million people in eight
states, and irrigation water for the entire region. Large-scale
extraction of water from the aquifer began after World War II and
has been accelerating ever since. Scientists estimate that the
southern portion of the Ogallala, from central Kansas to Texas,
will run out of water in less than 30 years. Once depleted, they
estimate that it will take over 6,000 years to replenish the aquifer
through rainfall.
Versions of this story are happening all over. And as the global
water crisis has percolated into public consciousness, companies
have been responding with actions to highlight their water
stewardship. The trouble is, without some regulatory oversight,
it’s difficult to know how effective those actions are or whether
they are just efforts to burnish corporate reputations. The point of
the coming disclosure rules is to provide some transparency in
the face of greenwashing public relations campaigns that obscure
the real story.
So what does that mean for companies?
Finding the Water Level
The World Resources Institute, the World Wildlife Fund, and our
company, Waterplan, each offer water risk platforms to help
companies gather the information that will be needed for these
disclosures. By bringing together satellite data, regionalwatershed data, and company consumption data, companies can
better understand the global and regional risks and quantify
facility-level risks including flood and drought risk, water scarcity
threats, and reputational risk.
Right now, the world’s largest aggregators of corporate water use
data is the CDP, a nonprofit organization originally called Carbon
Disclosure Project, which disseminates an annual water security
questionnaire as part of an environmental impact disclosure
system for companies and their investors. Current protocols for
measuring and reporting water-related risk are largely aligned
with the CDP water questionnaire.
‘The most prominent recommendations on water disclosure come
from the Task Force on Climate Related Financial Disclosures
(TECD) — these are what the proposed SEC rules will follow.
‘These guidelines were also used to shape regulations in the UK,
the EU, Switzerland, Brazil, Hong Kong, Japan, New Zealand, and
Singapore. Established in 2015 by the G20 Financial Stability
Board and chaired by Michael Bloomberg, the TFCD requires
information about what companies are doing to mitigate the risks
associated with climate change, including water. Many countries
are making TECD reporting mandatory.
‘The Taskforce on Nature-related Financial Disclosures,
meanwhile, was initiated in 2020 and offers an online portal to
guide companies in reporting nature-related risks like freshwater
consumption in stressed areas. This newer taskforce is focused on
risks beyond climate change with a heavier focus on water than
‘TFCD, It has released a draft disclosure framework that it hopes
will become the gold standard for reporting and managing
environmental risks.
Itis not yet clear which disclosure protocol will take precedence
in which jurisdictions.Today, there are dozens of metrics, tools, and frameworks to
measure how companies impact nature. Mandatory disclosure of
those impacts is coming, so business leaders should familiarize
themselves with the available tools, including the CDP
questionnaires and software platforms that gather the relevant
data. It will soon be required, but it is good practice to be
prepared.
Companies need a plan of action, and they need it now. There are
a few simple steps they can start with.
First, they should immediately assess their water quantity
impacts and set water use reduction targets that are informed by
local conditions. They can invest in systems to improve reporting
and traceability of water-intensive inputs. There is a coalescing
market of mitigation tools and services to implement cost-
effective solutions — such as using harvested rainwater, air-
cooling condensate, and reclaimed wastewater — while returning
any water drawn from rivers, reservoirs, or wells to the source.
Second, they should immediately assess their water quality
impacts and use this assessment to set targets and develop action
plans to improve that impact, such as reducing the use of harmful
chemicals, investing in recycling technology, and reducing
pollutant discharges — in particular, persistent organic pollutants
and heavy metals that degrade natural ecosystems. For instance,
Bangladesh extracts 80% of its water from groundwater, boring
wells more than 200 feet deep in some cases. As a result, the
World Bank estimates that up to 17% of the country’s population
is exposed to elevated levels of arsenic, salinity, and other
groundwater-depletion hazards.
‘Third, companies should engage deeply in water stewardship
activities in the basins in which they operate by advocating for
watershed protection, or by supporting new water conservation
and groundwater sustainability policies, such as reforestation andwetland conservation, which help recharge aquifers. In South
Africa’s Cape Town, which nearly ran out of water a few years ago,
the city is cutting down invasive species that suck up water.
Australian acacia trees alone are estimated to consume nearly
half a billion gallons of water a year that would otherwise
infiltrate the Atlantis Aquifer, just north of Cape Town.
Finally, companies should ensure that water-related risks and
opportunities are fully embedded within corporate governance
and decision making, from the boardroom and senior
management to employees at all levels of the workforce.
Gathering relevant data is key to understanding where the risks
lie and how they can be addressed.
While the service sector of the economy is less dependent on
water than physical industries, there are few industrial or
manufacturing processes that are not susceptible to water risk.
livestock, oil
and gas extraction, and mining are among the most water-
Apparel and textile manufacturing, cotton farming,
intensive industries, according to CDP. If anyone needs
convincing, CDP reported that water disruptions cost companies
$301 billion in 2020 — five times more than it would have cost to
address those risks beforehand.
Water risk might not your most pressing business problem right
now, but at some point in the near future, it may well be.
Beginning to address it now won't necessarily be easy, but it’s only
going to become harder — and more costly — the longer you wait.
JG
Jose Ignacio Galindo is the co-founder and
CEO of Waterplan, a San Francisco-based tech
company providing the most advanced climate
platform to monitor and mitigate water risk.
Originally born in the Patagonian city of
Ushuaia, Jose holds a master’s in engineeringfrom ITBA and is a ¥ Combinator and Stanford
GSB Alum.
NW
Nicolas Wertheimer is the co-founder of
Waterplan, the first SaaS Climate water risk
platform. He is also the founder of Proyecto
Agua Segura (Safe Water), which provides safe
drinking water to around 200,000 people in
vulnerable communities, and delivered 3,260
water projects in Latin America with successful
business indicators. He is a member of the
Global Shapers Community and of the Youth
Congress of Sustainable Americas, a social
entrepreneurship lecturer, and received Chivas
‘Venture Finalist recognition.
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