Corporate Water Accounting: An Analysis of Methods and Tools for ...
Corporate Water Accounting: An Analysis of Methods and Tools for ...
Corporate Water Accounting: An Analysis of Methods and Tools for ...
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28<br />
IV. Identifying <strong>Water</strong>-Related<br />
Business Risks<br />
As one <strong>of</strong> the key drivers <strong>for</strong> water accounting,<br />
we will look closely at the types <strong>of</strong> waterrelated<br />
risks that businesses are exposed to, as<br />
well as the ways in which water accounting<br />
methods/tools are working to (<strong>and</strong> intended<br />
to) identify <strong>and</strong> mitigate them. Our headline<br />
conclusion is that all water accounting methods/tools<br />
reviewed <strong>for</strong> this study are generally<br />
good <strong>for</strong> risk identification purposes,<br />
particularly in terms <strong>of</strong> providing a “broad<br />
brush” underst<strong>and</strong>ing <strong>of</strong> relative water risk.<br />
However, each approach provides unique<br />
in<strong>for</strong>mation, helping companies underst<strong>and</strong><br />
the nature <strong>of</strong> the risk in different ways.<br />
The interplay between waterrelated<br />
impacts <strong>and</strong> business risks<br />
<strong>Water</strong>-related business risks are closely related<br />
to water-related impacts. In most cases,<br />
companies with significant water impacts<br />
will be subject to corollary business risks.<br />
However, the inverse is not necessarily true:<br />
even companies with relatively insignificant<br />
water impacts may face major water-related<br />
risks. This is typically due to physical <strong>and</strong>/or<br />
socio-political factors that may change outside<br />
the company’s fenceline. For instance,<br />
economic development or population growth<br />
in a region may increase pressure on water<br />
resources <strong>and</strong> thus jeopardize a company’s<br />
continued access to water. New source water<br />
pollution may require (through regulation<br />
or otherwise) a company to install expensive<br />
on-site pretreatment technology so that<br />
the water is <strong>of</strong> suitable quality <strong>for</strong> production<br />
processes. In this respect, water-related<br />
impacts are just one (albeit a large) subset <strong>of</strong><br />
issues that create water risk <strong>for</strong> a company.<br />
While it may be true that not all social <strong>and</strong><br />
environmental impacts eventually manifest<br />
themselves as business risks, companies <strong>of</strong>ten<br />
find addressing major water impacts (both the<br />
company’s impacts on others <strong>and</strong> vice versa)<br />
a prudent risk management strategy.<br />
Impact assessments—discussed in detail<br />
in the following two sections—attempt to<br />
explore the implications <strong>of</strong> water use <strong>and</strong><br />
discharge on “external” factors such as human<br />
health, community access to water,<br />
ecosystem health, etc. In contrast, assessments<br />
<strong>of</strong> business risks tend to focus more<br />
on exploring the implications <strong>of</strong> this water<br />
use <strong>and</strong> changing external circumstances<br />
on “internal” factors such as the company’s<br />
legal access to water supplies <strong>and</strong> services,<br />
operational efficiencies, investor confidence,<br />
consumer perceptions, etc. Both types <strong>of</strong> assessments<br />
(risk <strong>and</strong> impact) require companies<br />
to consider how their own water use<br />
fits within the broader local water resource<br />
context. As such, the process <strong>for</strong> assessing<br />
impacts on watersheds, ecosystems, <strong>and</strong><br />
communities is <strong>of</strong>ten linked to (or at times<br />
integrated with) the process <strong>for</strong> assessing<br />
business risks. For this reason, it is useful to<br />
consider water impacts <strong>and</strong> risks together;<br />
however, it is also important to note that the<br />
various water accounting methods/tools may<br />
have an emphasis on one or the other.<br />
While some water accounting methods<br />
(e.g., LCA) are geared toward addressing<br />
the environmental <strong>and</strong> social (e.g., human<br />
health) impacts a company might have as a<br />
result <strong>of</strong> its water use <strong>and</strong> discharge, others<br />
focus instead on allowing companies to<br />
broadly underst<strong>and</strong> their water risk, <strong>for</strong> example,<br />
by using place-based water indicators<br />
that contextualize the company’s water use<br />
(e.g., WBCSD Global <strong>Water</strong> Tool). Others (e.g.,<br />
water footprinting) aspire to shed light on<br />
both a company’s business risks <strong>and</strong> impacts.<br />
The range <strong>of</strong> water risks<br />
Companies’ growing interest in water is<br />
driven by a number <strong>of</strong> factors, including pure<br />
operational efficiency, br<strong>and</strong> management,<br />
<strong>and</strong> corporate ethics/philanthropy. However,<br />
they are all ultimately driven by the desire<br />
to reduce related business risks whether that<br />
is to maintain social license to operate, build<br />
competitive advantage, encourage investment,<br />
or ensure long-term water supplies.<br />
The severity <strong>and</strong> type <strong>of</strong> these risks (as well<br />
as the appropriate mitigation strategies <strong>for</strong><br />
them) depend on geographic location <strong>and</strong><br />
type <strong>of</strong> industry sector <strong>and</strong> water use. That<br />
said, water-related business risks are <strong>of</strong>ten<br />
divided into three general <strong>and</strong> inherently<br />
inter-related categories:<br />
Physical:<br />
• Physical risks pertain to the inability<br />
to access adequate water supplies or