Understanding the full costs and benefits of acting on water risk

Ceres finds companies often lack a complete picture of their impact

While many companies are starting to assess their exposure to water risks and crafting strategies for addressing them, they often lack a complete picture of where and how their actions can have the biggest impact.

The numbers, though familiar, are no less jarring. If researchers’ predictions hold true, by 2030, the world will have significantly less water than it uses. The consequences of escalating water scarcity and pollution to food supplies, energy security, and for communities to have access to clean water are frightening, as are the material financial risks to business: already more than 50% of stocks in each of four major US stock indexes are in industries with medium-to-high water risk.

Most company balance sheets consider water only from the standpoint of the cost of accessing water—essentially, what a company pays water utilities for the water they use in their operations. Some go a step further and develop a shadow price, combining this direct cost of water with an estimated cost of the water risks the company is exposed to.

But these approaches to pricing water do not consider all of the value that water brings to the business.

For instance, how working to sustainably manage water can strengthen companies’ supply chains and relationships in watersheds, improve brand value, and prevent penalties and fines. Companies that understand these potential benefits gain a more complete financial picture, making them better equipped to prioritize strategies and investment for addressing water issues, including water quantity, water quality, ecosystem health, and communities’ access to safe water—ambitions at the core of the Valuing Water Finance Initiative, an investor-led effort to work with companies to act on water risk and opportunities. 

Some companies more advanced on their water journey—especially those for which water is an integral part of their product, such as beverage companies—may already understand the need to account for the full value of water. Other companies may have more difficulty unlocking funding for solutions because the cost of water alone often doesn’t make the case.

Water stewardship

So how do you bolster the case for water stewardship? Ceres and Bluerisk recently outlined a framework to help companies estimate the cost of addressing the water risks they face.

See also: – Ceres launches water value assessment framework

Companies , such as Danone and Reckitt, are already beginning to adopt this method. As water risks climb, knowing the full value of companies’ water stewardship investments gives investors the insight they need about the risks—and opportunities—in their portfolios. It gives them data to help optimize portfolios for both business returns and societal impact. It can also help investors, including those in the Valuing Water Finance Initiative, target engagement strategies more likely to spur companies to set and make progress towards stewardship goals.

Water is much more important than the price you pay for it. Companies that understand the full costs and benefits of acting on water risk will be much better positioned to determine the most effective routes for change, and secure internal buy-in needed to implement interventions necessary to mitigate risk.