Water shortages will impact business within 5 years

Water scarcity and declining quality are likely to adversely impact on major companies within five years, making water conservation, water efficiency and effective water management an immediate challenge.

Urging companies to act now, SA’s first Water Disclosure Report reveals that 85% of water-intensive users among the JSE Top 100 companies are exposed to water-related risk, with 70% believing that risks to their direct operations could occur within the next five years.

However, most companies still need to identify water risks in their supply chains and give higher priority to managing their risks, says the report, released by the National Business Initiative (NBI).

The report also indicates that many companies have not assessed the true value of water because of a lack of data, and still need to calculate the impact on water from climate change, disruption to supply and inefficient water use.

The Water Disclosure Report is a recent addition to the international Carbon Disclosure Project (CDP), which undertakes annual surveys to provide 551 institutional investors holding $71-trillion in assets under management with information on the extent to which companies are meeting the climate change challenge.

The CDP Water Disclosure Report was introduced internationally in 2010 with the backing of 354 investors representing $43-trillion in assets. The 2011 report covers 315 of the 500 largest companies in the FTSE Global Equity Index Series. In addition, 56 of the JSE Top 100 companies in SA and leading companies in Australia were invited to participate, as they are particularly water-stressed.

The project focused on companies in water-intensive sectors or that are sensitive to water issues in their supply chains. Of the 56 South African companies, 26 responded.

The report notes that if no action is taken SA is expected to experience a 17% gap between water demand and supply by 2030, equating to a water shortfall of 2,7-billion cubic metres and that some of the country’s most economically important catchment areas will be worst affected.

“SA will have to resolve tough trade-offs in water use between agriculture, key industrial activities such as mining and power generation, and the supply to growing urban centres,” says the report.

“These trade-offs will be further complicated by an increasingly uneven and unpredictable supply of rainfall as a result of climate change, declining water quality and reliance on significant water transfers from neighbouring countries coupled with an ailing and overburdened water infrastructure system.”

Faced with these challenges, NBI CEO Joanne Yawitch says in her foreword: “It is critical that more companies take cognisance of the level of risk posed by water and form partnerships with key stakeholders to work towards a comparable means of disclosing water use and develop collaborative solutions.”

The report’s key findings are:

•Water scarcity is a significant risk for South African companies with 85% reporting some exposure to water-related risk in their direct operations; 70% of respondents believe that risks to their direct operations could occur within the next five years; and 46% state that the majority of their operations are located in areas where water scarcity is a risk.

•South African companies have a low awareness of water-related risk through their supply chains. Only 38% of companies were able to identify risks in their supply chains, and a further 38% did not know if their supply chains were at risk. Only 19% are requesting key suppliers to report on water-related issues.

•The need for effective action at the local level is recognised. Many companies report that they engage with communities and stakeholders as part of effective action in tackling local water challenges.

•South African companies are measuring their water use. But all industries — including high risk water-intensive industries — show mixed performance in setting quantitative water-related targets.

•Water-related opportunities are near-term. Encouragingly, 77% of the respondents believe water-related issues present opportunities that have the potential to generate substantive change in their business. More than 90% of the opportunities reported can be exploited within the next five years.

•Water-related issues receive less attention than climate change at the board level. One-third of companies do not exercise board level oversight over water issues compared to board level oversight for climate change, which stands at 90% for South African companies.

•Few companies are setting concrete, quantitative targets, especially in terms of absolute reduction targets or water quality parameters. If performance is to improve, targets need to be included in management plans, objectives and performance evaluation.

•Companies that have started to consider water as a risk are finding material water-related risks (and opportunities) for their business. This is especially true for risks arising in companies’ supply chains.

•Climate change risks are typically viewed to be more long term. Due to the near-term nature of water risks, the number of stakeholders involved, the technological and capital requirements for solutions and this immediacy, companies must start to act now in support of a consistent and stable supply of water.

“The grave projections for water scarcity, supply and quality issues in SA and the consequent extent and severity of risk to which companies are potentially exposed to in comparison to the Global 500 companies suggests that South African business should in fact be doing more and better than their international counterparts to safeguard their business operations,” says the report.

William Sarni, global head of sustainability at Deloitte, which is the sponsor of the local report, says: “Water use is not about price, but about availability and competing uses.”

He says companies that can manage water resources can have a competitive advantage, as this allows them to expand into regions that may have water shortages, or cope with sudden, severe reductions in supply.

Steve Nichols of the NBI encourages companies to study and better identify risks related to water shortages and keep abreast of improvements in water use reporting. Companies must also improve accountability by setting clear and meaningful goals and start acting today, even as legislation and regulations evolve.

Deloitte director Duane Newman says: “The biggest finding in this report is the lack of governance on this issue”, adding that companies need to understand how water affects stakeholder and shareholder value of their businesses.

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