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Multinationals Need to Take Notice and Take Action on Water Risk Data

This blog post originally appeared on The Guardian's Sustainable Business vertical.

New research from the World Resources Institute scores water-related risks facing 180 countries and 100 river basins. This is the first national-level data of its kind, evaluating competition for available water supplies, annual and seasonal supply variability, flood occurrence, and drought severity.

The data paints a country-level picture of water risks, information that is clearly relevant for national policymakers. But this research also holds huge implications for the private sector—particularly for shareholders and investors, corporate operations, and corporate supply chains. Multinational businesses should take notice—and take action.

There's a dearth of water-related data out there—a problem for water stakeholders from business to policy to civil society. If data is collected at all, it is usually gathered at local geographic scales, such as at the individual watershed and aquifer-level.

This information is often too localised for decision-makers in international business. It cannot easily inform portfolio and operational analyses, which often focus on much larger geographic scales.

Water-related stressors can create ripple effects across the financial world. In 2013, Moody's Investor Service released warnings about water-related risks to the mining industry's credit ratings, as companies spend more in infrastructure to help them respond to growing water challenges.

Banks, pension funds, and other international asset managers, then, have a vested interest in understanding how national-level water issues might affect the value of their portfolios. And indeed, some financial institutions are already seeking out this information.

HSBC, for example, wanted to include water-related risks in a 2013 country-level risk assessment. The company used the Food and Agriculture Organisation's Aquastat data, which measures the average volume of water available to every person in a country per year. As the report notes, that measure of scarcity misses a critical piece of the water-supply puzzle: the location of water determines its availability. Brazil, for example, has 12% of the world's freshwater resources, but its industries, farms, and communities are concentrated along the coasts, unable to access much of the country's plentiful resources.

Companies around the world face operational risks such as droughts, floods and water supply variability, which can affect their bottom lines. But many do not know which of their operations are located in the most water-stressed areas. It's important for companies to understand water-related risks at the country and river-basin level to identify which of their operations face the most severe vulnerabilities.

For example, WRI's new research found that 36 countries face extremely high levels of water stress. In each of those nations, agricultural, domestic, and industrial users withdraw more than 80% of the water available to them every year. Businesses, farms, and communities in those countries are therefore exposed to water-supply risks. Companies should not only develop better water management practices internally, but use the country-level scores as a way to reach out and work with river basin authorities and governments around their operations.

Country-level scores can also be useful for disclosure. Both the CDP Water programme and United Nations CEO Water Mandate ask companies to share a risk score for river basins in which they operate. Such disclosure tools are a useful first step toward effective water management within a company and with basin and national-level authorities.

Water-related risks to companies extend beyond their own facilities' walls – they hold serious implications for supply chains. Any corporation sourcing commodities from global markets may not know exactly where those materials originate from. However, companies can determine the country of origin for those materials through the Sustainability Consortium's global commodity mapping project and other similar tools. A supply chain manager might then refer to country-level water risk scores and ask their suppliers more pointed and informed water-risk related questions.

In the face of climate change, population growth, and urbanisation, global water risks are only projected to grow. The number of people experiencing water scarcity or stress, for example, could triple by 2025. Companies must fully understand these risks – and take steps to mitigate them – in order to secure their long-term future. By accessing national-level water data, businesses can not only improve water management within their own operations, but can build deeper collaborations with river basin authorities and country governments around the world to collectively address pressing water risks.

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