Value chain water risk assessment

Water dependence is embedded in direct business operations and value chain reliability. Water issues are relevant across all industry sectors as a basic necessity that keeps the lights on and minimizes operational disruptions throughout the supply chain. However, rising climate challenges means rising water challenges. Unchecked water issues can inflict significant environmental, social, and economic risk to a business at every stage of its value chain.

Historically, corporate water initiatives have focused on operational cost reductions and basic compliance maintenance. To address the mounting sustainability challenges that lie ahead, water stewardship-related strategies must move beyond simple reduction and compliance goals. Identifying, quantifying and analysing water risk in a company’s direct operations as well as for upstream suppliers is imperative to devising a holistic water stewardship strategy.

The increasing risks related to water scarcity and security are not going unnoticed. There is a growing interest from investors and other stakeholders for heightened disclosure on organisational water risks to better understand vulnerability and resilience efforts. Mandates such as the UN Global Compact CEO Water Mandate have been instituted to galvanize corporate water stewardship initiatives to address global water challenges across supply chains.

water risk assessment tool

Illustrative water risk assessment output

 

Water Risk: What must businesses do?

To address the growing water challenges and its impact on your business, it is essential to quantify your business’s water dependence, to develop a risk monitoring system, to understanding your opportunities to mitigate risks, and to share the available information with other businesses and organisations in the watersheds you operate in to have collective impact.

To start, robust water footprinting and accounting in a water stewardship strategy can help to assess and secure the long-term availability of clean water throughout the value chain.

cracked earth

 

Physical, regulatory and reputational water risk

While there is no standard water risk assessment framework, risk is generally assessed across three categories: physical, regulatory, and reputational.

  • Physical risk encompasses both water quantity and water quality issues including the management of water scarcity, up-and down-stream discharge quality, and climate-related impacts such as floods and droughts. This presents the most immediate and disruptive threat to business continuity. Baseline water stress, broadly defined as the ratio of water withdrawals relative to available renewable water supplies, is a critical metric for most water risk assessments and is a starting point for initial screenings.
  • Regulatory risk is growing as governing bodies react to increasing water stress and declining water infrastructure. Regulatory risks include water pricing and allocation schemes, regulatory adherence and costs, and water, sanitation, and hygiene (WASH) These risks are important to manage to safeguard a company’s license to operate.
  • Reputational risk assesses local community, investor, and other stakeholder perceptions of a company’s water-related impacts. The perception of misuse and mismanagement of water resources within water stressed areas can be extremely detrimental to a company’s brand value.

Indicators may include:

the volume of a company’s water withdrawals relative to other users or ecosystems in the watershed
disparities or inequities in local or regional water access
perceived contamination of water bodies
historical accounts of water-related conflicts
basin-level water risk graphic

Commonly Used Water-related Indicators to Evaluate Overall Water Risk

 

Basin vs Operational Water Risk:

Operational water risk includes facility operational data, such as production or water withdrawals whereas basin water risk includes risks faced by all facilities operating within a watershed, or basin.

Operational water risk is tied to facility operations, such as the volume of water withdrawals necessary for the production/operation of goods and services. Operational risks can arise from water intense operations, poor wastewater discharge practices, or lacking water conservation practices by facility employees.

Basin water risk, on the other hand, is specific to the risks facing the watershed from which a facility sources its water withdrawals. Basin risks can result from regional droughts, contamination, or overallocation of water resources to stakeholders that outpace the natural watershed replenishment rate.

How we can help

  • Reporting and disclosure – we help businesses craft responses to various water reporting and disclosure frameworks and can advise and support a client’s score improvement strategy
    • e.g., CDP Water Security, Global Reporting Initiative (GRI), Dow Jones Sustainability Index (DJSI), Sustainable Accounting Standards Board (SASB), CEO Water Mandate, and Sustainable Development Goals (SDGs)).
  • Research briefs – we produce research briefs to summarise suggested approaches and methodologies based on clients pre-existing water stewardship materials and resources, alongside benchmarking on best practices, available tools and indicators, internal stakeholder engagement and data availability.
  • Water risk assessment – we evaluate both publicly available tools and custom approaches to quantifying the financial impact of value chain water risks for the client.
    • We conduct basin-level value chain water risk assessments to quantify inherent water risks and as well as local/operational assessments to quantify residual water risks. We combine basin and operation risk data to identify the highest risk facilities, residual risk and prioritise shared water challenges.
    • Public tools include: Aqueduct (WRI), Water Risk Filter (WWF), The Water Risk Monetizer (Ecolab, Trucost & Microsoft) and WAVE (WWF), among others.
    • In our customised approach, we combine the best-available indicators from multiple water sustainability tools with operational data and establish a custom approach to determine overall water risk based on factors most critical to the business such as water consumption intensity and intensity basin risk.
  • Hotspot analysis – we produce results to aid in identifying water hot spots and priorities in business operations and supply chains using a science- and risk-based approach.
  • Climate risk modeling – we provide climate risk modelling for water-related business risks.
  • Financial value risk assessments – we can calculate business value at risk and climate-related risk for managing water scarcity and water stewardship practices.
  • Data visualisations – we provide data visualisations for Water Inventory and Risk Assessment Results.

Contact us

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Anthesis has offices in the U.S., Canada, UK, France, Ireland, Italy, Germany, Sweden, Spain, Portugal, Andorra, Finland, Colombia, Brazil, China, the Philippines and the Middle East.