Risks and challenges for business
Business risk around water is rapidly entering the boardroom and risk managers’ realm. A few high profile cases1 have alerted business leaders to these risks and some companies are responding by seeking to put in place systems for understanding and addressing water-related risks to their operations, supply chains and brands.
The increasing public and corporate awareness of climate change over the past decade has focused broad attention on water as a key resource under threat. A 2008 Goldman Sachs ‘Top Five Risks’ conference identified a catastrophic global water shortage as a greater global risk than soaring food prices and exhaustion of energy reserves during the 21st Century.
Most businesses will find it difficult to manage all of their water risks alone. Given the complexity of the issues and the political and social importance of water, engagement with civil society, other companies and the public sector is necessary. This report briefly outlines the nature of the global corporate risk around water and highlights ways in which business can better manage this growing risk. The report focuses on water scarcity as the major global issue affecting business, but similar issues often arise where water quality presents risks to companies.
Foreword by Dr Richard Ward, Chief Executive Officer Lloyd’s
“The issue of water scarcity is acquiring a new impetus. Not too long ago, it was primarily viewed as part of the suite of issues which make up climate change, but like carbon emissions, it is fast acquiring its own identity and demanding serious attention from risk managers across their business operations and supply chains.
However, as this report sets out, water is not carbon. It has a unique character, as a shared resource, as necessary for both life and business and as being highly variable in character. Floods and droughts can happen in swift succession and in close proximity.
Lloyd’s, the world’s leading insurance market, has good reason to pay close attention to floods and droughts.
But this report is not simply for the insurance market, or solely concerned with the physical risks of too much, or too little water. It covers a wide variety of issues relating to water use for today’s risk manager. How confident are you in your ability to maintain a steady supply of water? Could the record of your suppliers on water management damage your brand or reputation? What new regulations could be imposed on how your company manages water?
The 360 Risk Insight programme is designed to encourage debate on emerging business risks. And this report considers the range of water issues faced by the
business community, from the ability of bottling plants to maintain supply to the tools available to investors or insurers to judge the level of exposure a business has to water risk.
The answers to some of these questions come close to the domain of corporate responsibility. In many of the climate related challenges faced by businesses, there is a close connection between social and environmental policies and self-interest. Water is no exception. One strong lesson from this report is that water needs to be considered at local level, as well as tackled at a national or international level. But across each of these level is a common theme: sustainability. When we are faced with a shortage of any important commodity, the initial impulse is to acquire more, but this report draws the opposite conclusion – that we should use less, if we are to safeguard ourselves in the future.
Like all our 360 Risk Insight studies, this report on water scarcity forces businesses and risk managers to take a long-term viewpoint, while recommending that they start to take actions now. Over the next few decades, the world will have to make some hard decisions about water. The global population may grow by 3 billion people up to 2050, all of which will need water, and rising prosperity in Asia will further heighten demand. Set against more extreme and unpredictable climate conditions, we in the corporate world will need to find a way to ensure the sustainability, and appreciate the value, of the world’s water resources. Not simply because it is right, but because it is necessary.