Thirsty planet: Business responses to water scarcity

Water is a finite resource. As the National Geographic observed, “All the water that will ever be is, right now.” Indeed, water levels are maintained through a process of re-circulation. However, increased demand for water and water quality and distribution issues have led to water scarcity in many parts of the world.

The United Nations estimates that by 2025 two-thirds of the world could face water ‘stress’ situations. Already in China, more than half the cities are struggling to get clean water to their residents and recent water crises have shut down entire regions. As potable water becomes scarcer, even in developed regions, prices will rise and access become threatened.

The challenge of water sustainability is broader than securing access to this resource for businesses or individuals. Water is a vital component of natural ecosystems, essential for plants and animals, as well as the overall health of area economies. Healthy ecosystems are needed to control erosion and water run-off, to provide natural water purification processes and maintain appropriate water flows through a community.

“The invisibility of biodiversity values has often encouraged inefficient use or even destruction of the natural capital that is the foundation of our economies.” – The Economics of Ecosystems and Biodiversity (TEEB) study (2010)

Water scarcity is not simply a social and environmental issue but an economic one. Water-related issues may quickly change the way we do business. Production methods, customer requirements, investor sensitivities and capacity levels that shift in the wake of constrained water availability could threaten many successful business models.

Water-intensive industries like beverages and agriculture are obviously at risk and this is where we find many of the companies leading the discussion and implementation of water sustainability.

But even sectors less obviously in danger must consider the potential threat to their models. Ford for example, uses about 400,000 litres of water for each car it makes. Financial impacts are a critical part of water risk evaluation. It is therefore essential that management accountants understand the business risks and potential impacts on company performance posed by water scarcity.

CGMA designation holders have the skills, such as risk management, analytics and forecasting, to help their companies create sustainable business models. They can provide the right information to help decision makers understand the true cost of business so that they utilise resources more efficiently for both the short and long-term.