The Porous Boundaries: Global Water Risk Calls for Cross-Sector Collaboration
Decision-makers in industrial firms might be tempted to think of water management in terms of inputs, processes, and outputs. You take in water from an outside source like a river or reservoir; you move it around your facility for cooling, cleaning, flushing toilets, and so on; then you treat the wastewater and discharge it out the back end.
But the emerging global water situation is forcing companies to look at their water more as an ecosystem service and as a scarce resource that has to be managed in cooperation with the larger community and across sectors.
CEO Paul Simpson of the Carbon Disclosure Project (CDP) writes in the group’s Global Water Report 2012 that just going along with business-as-usual water management practices “will put at risk approximately $63 trillion, or 45 percent of the projected 2050 global GDP.” Simpson says that figure is “1.5 times the size of today’s entire global economy.” On the other hand, he says, “research exploring the links between water and economic growth shows that every $1 invested in water infrastructure can deliver nearly $5 of wider economic benefits over the long term.”
According to The CEO Water Mandate, a joint program between global businesses and the United Nations, “the era of cheap and easy access to water is ending, creating perhaps a greater threat to businesses than the loss of any other natural resource, including fossil fuel resources.” The reason for this stark assessment is that “there are various alternatives for oil, but for many industrial processes, and for human survival itself, there is no substitute for water.”
The CEO Water Mandate says that for most industry sectors, “the largest portion of their water footprint is embedded in the production of raw materials such as food crops, fibers, and metals.” Obviously direct operations such as factories and distribution centers use water, but concerns over water risks often require a company to cast a wider net, because much of a company’s water footprint can be associated with its suppliers. In fact, researchers at Carnegie Mellon University have found that 60 percent of industrial water use is “indirect,” in a company’s supply chain.
No wonder, then, that large companies are focusing considerable efforts on better management of their water supply and wastewater treatment systems, both internally and across the supply chain. Increasingly, company decision-makers are having to recognize that water risks extend beyond the fenceline.
Dow Chemical: Water Stress Spotlights a Porous Boundaries
Worldwide, industry uses 18.7 percent of water, competing with municipalities and with agriculture, which accounts for almost 70 percent of consumption. In North America, industry water consumption is 43 percent of the total.
So one could be forgiven for characterizing industrial firms as competitors for water resources with farmers and cities. However, there’s a better way to look at it, according to Neil C. Hawkins, vice president for sustainability and environment, health, and safety at the Dow Chemical Co. In a recent interview, Hawkins acknowledged that “as a large company that has water needs, we pay a lot of attention to water-supply risk in terms of quality and quantity. The whole issue of availability both for today but also into the future is a strategic issue for Dow.”
But rather than look out for itself in isolation, Dow sees water stress and scarcity as an issue it faces in common with other users and especially with the communities where it operates. The company is involved in a number of collaborations with municipalities and non-governmental organizations (NGOs) that are working together on solutions to water scarcity.
Dow’s operations at Freeport, Tex., make up the company’s largest integrated manufacturing site in the world and the largest chemical complex of any kind in North America. Texas Operations produces more than 40 percent of the products Dow sells in the U.S. and 20 percent of those sold worldwide.
Because of the size and nature of the complex, it has a considerable water footprint, especially given its location at the junction of the lower Brazos River, the Columbia Bottomlands (a floodplain forest along the upper Texas coast) and the Gulf of Mexico. Freeport is an important focus for Dow’s collaboration with The Nature Conservancy (TNC) under the theme of “The Economics of Ecosystems,” an initiative designed to demonstrate “that protecting nature can be both a global business strategy and a company priority.”
Texas Operations has become the site of a pilot project for the TNC collaboration that includes using natural infrastructure to mitigate coastal hazards and preventing disruption to freshwater supply. According to The Dow/TNC 2012 progress report, permitted water demand in the Brazos River basin already exceeds supply during 10 percent to 20 percent of the year, and recent droughts in the region have exacerbated the stress. Municipal and industrial demand is expected to drive a 54 percent increase in total demand by 2060.
Collaboration experts working on the joint project have generated innovative solutions to this looming crisis, including water reuse, reallocation of reservoir pools, and improvements in regional irrigation practices. As an example, Dow recently put together a cooperative project with the City of Lake Jackson to divert wastewater effluent from the city into Dow’s raw fresh water canal for treatment and use in manufacturing operations. The system saves money for everybody and reduces the company’s use of fresh river water by 2,500 gallons per minute.
“We’re very focused on reducing our demand on water,” Hawkins told me, “and at the same time working upstream with the state on ways to improve the supply of water to everyone on the river as well. All of these water supply issues have to be approached through collaboration between companies, cities, governments, and farmers.”
Global Companies Disclose Their Water Risks
The Carbon Disclosure Project report mentioned previously underlines Hawkins’s emphasis on the need for broad-reaching collaborative projects to attack the looming water crisis.
CDP is known for its climate-change program, which serves as platform for collecting and reporting on greenhouse gas emissions and energy use on behalf of large companies. However, the organization also operates a water program that promotes “sustainable corporate water stewardship to safeguard water resources and address the global water crisis.”
In 2012, 191 companies responded to CDP’s request for water-disclosure information. Out of those respondents, 68 percent reported “exposure to water-related risks,” up from 59 percent just from the year before. Such risks include water stress or scarcity, flooding, rising cost of discharge compliance, regulatory uncertainty, declining water quality, higher water prices, reputational damage, and restricted access to water permits. Fifty-five percent reported that they are establishing definite water-related goals and targets.
Companies can’t tackle water problems in isolation, though, the CDP report stresses. Jan Thomsen, chief risk officer for Norges Bank Investment Management (NBIM), writes about the value of “collective action” in managing water risks: “As water is a shared local resource, companies can benefit from working with other stakeholders to develop shared solutions,” which requires engaging with local communities and non-governmental organizations (NGOs), as well as suppliers and other companies. Such collaboration puts companies in a position “to influence water policies and manage regulatory risks.”