Mindy Lubber and Peter Gleick

Preventing a water crisis

By Mindy Lubber and Peter Gleick
March 9, 2009
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CALIFORNIANS KNOW all too well that water shouldn't be taken for granted, especially as the state now faces what many are calling "the worst drought in modern times." On the heels of losing more than $260 million last year due to the drought, California farmers are at risk of losing most of their federal water supplies critical for irrigation - a blow that could cause even more severe economic losses this year.

"Water is our life - it's our jobs and it's our food," said Ryan Jacobsen, executive director of the farm bureau in Fresno County. "Without a reliable water supply, agriculture is at great risk."

So are many other industries.

On a warming planet, scientists have said to expect water scarcity problems like these to rise and become even more severe. Consequences for a reeling global economy will be profound.

Water is one of our most critical raw materials - even more important than oil, for there are no alternatives. Peter Brabeck-Letmathe, chairman of Nestlé, one of the world's largest food conglomerates, put it starkly in an article in The Economist in December 2008: "I am convinced that, under present conditions and with the way water is being managed, we will run out of water long before we run out of fuel."

Already, China, India, and the western United States are seeing growth limited by reduced water supplies from shrinking glaciers and melting snowcaps that sustain key rivers. Meanwhile, power generation has been cut back due to more frequent and intense heat waves and droughts in Australia, Europe, and the southeast United States.

A new report by Ceres and the Pacific Institute evaluates water-related risks to eight water-intensive industrial sectors: technology, beverage, agriculture, electric power/energy, apparel, biotechnology/pharmaceuticals, forest products, and mining. Our conclusion is that each of these sectors faces serious near- and long-term economic risks related to their water dependence.

For example, silicon chips, the backbone of our information economy, require huge amounts of clean water to produce. Yet, 11 of the world's 14 largest semiconductor factories are in the Asia-Pacific region where water scarcity risks are especially high.

In the beverage industry, Coca-Cola and PepsiCo bottlers lost groundwater operating licenses in India because of water shortages, and beverage companies, including Nestlé Waters, are facing strong opposition to the building of new bottling plants because of water supply concerns. Water scarcity is forcing up the cost of food. Rice prices soared last year when drought caused the collapse of rice production in Australia. Some 70 percent of global water use supports agriculture.

Few companies and investors are thinking strategically about the profound business risks that will exist in a world with diminishing water supplies. To succeed in a water-constrained economy, it is essential that companies:

  • Analyze their entire water footprint.

  • Assess physical, regulatory, and public perception risks associated with their direct water use, water use throughout their supply chain, and end product use.

  • Align their water footprint evaluations with the company's energy and climate risk assessments.

  • Elevate water as a high governance priority for executives and board members.

  • Disclose to investors and other outside stakeholders water management strategies, performance data, and goals.

  • Boost engagement with key stakeholders such as local communities, shareholders, suppliers, government regulators, and employees.

  • Investors also have a key interest and role in catalyzing companies to look more closely at their potential risk-exposure from water-related challenges. Specifically, investors should:

  • Independently assess companies' water risk exposure.

  • Demand substantive water risk disclosure by companies they invest in.

  • Encourage companies to integrate water issues into their climate change strategies.

    Albert Einstein once said, "We shall require a substantially new manner of thinking if mankind is to survive." While he was speaking of another threat and in another era, Einstein's admonition is appropriate here. Businesses and investors alike need to bring new ways of thinking to using the most essential ingredient of life: water.

    Mindy Lubber is president of Ceres, a coalition of investors and environmental groups. Peter Gleick is president of the Pacific Institute, a research organization dedicated to protecting our natural world, encouraging sustainable development, and improving global security.

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