Business faces many threats from water scarcity
Water scarcity is an increasing threat to business as populations continue to grow and climate change takes hold, according to Lloyd’s, the world’s leading specialist insurance market and WWF, the conservation organisation.
The new report produced by Lloyd’s 360 Risk Insight and WWF, Global water scarcity: risks and challenges for business, says that businesses will have to address and manage the risk of water scarcity in the future, highlighting that all goods require water at some point in their production, as well as it being the most important human resource.
As water resources become scarce, even companies that hold a water licence – which entitles them to use a set amount of water – may face risks as governments seek to re-allocate water to priority users.
It is not just those businesses operating in the areas of water scarcity that need to manage their exposure, their business partners are also affected as the risk spreads through supply chains and imported products requiring water in their production.
Lloyd’s CEO, Richard Ward, said managing water is no longer simply a CSR issue, but a core business issue:
“Water scarcity is already a reality for some businesses and as this trend increases all risk managers will need to consider their organisation’s exposure.
“The most simple risk management response is to reduce your own water use or that of your suppliers. However, businesses cannot manage this risk alone and will need to work with the wider community to improve water management and protect this critical resource.”
There is a finite amount of freshwater on our planet - only three per cent of the total water in the world is freshwater and less than one per cent is readily accessible to humans. Reputational risk is also very real as companies could be accused of over-using scarce water at the expense of the environment or householders.
WWF Head of Freshwater Programmes, Dr David Tickner, said:
“Put simply, this report shows that we all live at the water’s edge.
“Water is of critical importance to us all in our everyday lives. But the evidence is increasingly clear that freshwater ecosystems – the rivers, aquifers and wetlands from which we obtain much of our water – are in rapid decline globally because of over-use, pollution and the proliferation of poorly-planned dams.
“Businesses, other water users and ecosystems share many of the same water-related risks. Moreover, getting water management right underpins our ability to tackle many of the great challenges of the 21st Century: economic growth, food security, energy security, reducing poverty and adapting to a changing climate. WWF believes that businesses should be as much a part of the solution as governments and NGOs.”
The report identifies two strategies for companies to manage water risk:
* The three Ms - Producers should: measure their water risk; mitigate it; and market themselves as leaders in managing water use in the sector.
* The three Is – Businesses in the service sector can: consider water risk profiles when identifying suppliers; influence suppliers to mitigate water use or meet set standards; and consider water risk to businesses and supply chains when making investment decisions.
Water presents several dimensions of risk for business some of which may be covered through business interruption, property, liability or reputational insurance products. But as awareness of the risk increases, insurers will explore the potential for tailored products.
A previous Lloyd’s 360 Risk Insight report on climate change and security found water also presents a security risk to business in some parts of the world where it could become a source of inter-state conflict, such as India and Pakistan competing over access to the diminishing supply of water from the Indus river basin.
The report released today points to several initiatives already underway that can support businesses in their attempts to manage risk, including developing water footprinting methods, company water stewardship standards and guidelines for engaging with governments to improve public policy on water resources.
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