Water’s characteristics require a different management approach, says Dylan Waldhuetter, Director of Water Stewardship Solutions at The Water Council.
If you pay attention to the sustainability space, you probably hear the term ‘water stewardship’ a lot. The importance of stewardship has been growing as the general public and large corporations alike realise the urgency of solving global water crises such as scarcity, flooding and poor quality. According to the UN, more than two billion people live in countries experiencing high water stress. More than half of the global population could face water shortages by 2050, with alarming security, economic and humanitarian implications.
As its significance grows, understanding the true meaning of water stewardship is critical. Many still see stewardship as an ethic rather than a practice. While there is an ethical component to stewardship, the definition of stewardship implies action – conducting, supervising, or managing something. That something can be anything from public lands to your weekly book club to natural resources like water.
So, how does stewardship connect to business?
What is water stewardship specifically and how does it apply to businesses? The most widely used definition of water stewardship is the use of water that is socially and culturally equitable, environmentally sustainable and economically beneficial, achieved through a stakeholder-inclusive process that includes both site- and watershed-based actions. Basically, it’s the sustainable management of water achieved through a process that includes stakeholders as well as consideration of local watershed factors. It’s these two bolded points that take water stewardship beyond traditional management of water resources. They are important for three reasons:
Reason 1: water challenges are local. In fact, water challenges and their corresponding risks to businesses are hyperlocal. A facility in water-abundant Milwaukee will have very different concerns from a facility in water-scarce Phoenix. Does it make sense for both facilities to implement the same strategies to address water? No. It’s important that these facilities consider and implement impactful actions that are informed by the context of the watershed and the operational aspects of each facility.
Reason 2: water challenges are diverse. The company with operations in Milwaukee might face risks resulting from poor water quality and deteriorating infrastructure, while the company with operations in Phoenix might face water scarcity and changing regulations. The diversity of these challenges requires different responses that are informed by local context to be credible and impactful.
Reason 3: water is a shared resource. As a shared resource has a multitude of diverse stakeholders. It’s unlikely that any single actor is solely responsible for a water-related challenge. It’s equally unlikely that any single actor will be able to solve it. Due to the locality and diversity of water challenges, a company must involve local stakeholders in the process in order to adequately understand the water-related risks it faces. Not only does this lead to a better understanding of local water risks, but it also presents opportunities to act collectively toward solutions.
What are the implications for businesses and ESG investors?
Shareholders and other stakeholders are increasingly focused on sustainability. They are no longer satisfied with glossy reports but instead expect tangible actions to address environmental issues including water. Climate change and carbon remain a top focus, but water is becoming increasingly important to investors. Water issues, including factors directly and indirectly related to water such as pollution and toxins, natural resources and agriculture, are listed among the top concerns according to the 2020 Report on US Sustainable and Impact Investing Trends Report.
In response to the growing spotlight on the environment, corporations are listening. According to US SIF: The Forum for Sustainable and Responsible Investment, the total portfolios of institutional investors, money managers and community investing financial institutions considering ESG issues in their investment decision-making equaled US$16.6 trillion in 2020, a 42% increase from 2018. Of that total, US$2.18 trillion is focused on sustainable natural resources and agriculture, US$1.39 trillion is dedicated to the ‘environmental-other’ category, and US$950 billion is concerned with pollution and toxins. Each of these categories involve water-related concerns, demonstrating the ever-increasing importance of water in the institutional investment space.
The challenge is that many investors are not equipped with the necessary data to make apples-to-apples comparisons regarding a company’s water stewardship performance. While there are reporting constructs that provide company-wide data on key water metrics, they typically do not take context into consideration and thus don’t verify that a company is credibly addressing water risks and impacts in its direct operations and supply chains. This has led to many investors mistaking ‘water conservation’ goals and outcomes for exceptional water-related performance.
While water conservation can be an impactful goal for facilities in areas that are water-scarce, it shouldn’t necessarily be the top priority for facilities in water-abundant regions, where water quality or flooding could be a bigger concern. Investors should consider how a company is prioritising its risks and that it is setting goals and implementing targets based on the highest-priority risks. The local, diverse and shared nature of water challenges and risks means that investors would benefit from a better way to assess the processes and systems that companies have in place to ensure that priority water risks are addressed across the value chain.
Mitigating material water-related risks
It is time to move beyond broadly defined efficiency and conservation goals and targets. Good corporate water stewards must develop strategies and processes to ensure that they are adequately mitigating their most material water-related risks and taking credible action through their value chain. As companies prioritize water-related action where it matters most, they build a more water-resilient supply chain. They also discover that meaningful action, transparent reporting and proactive communication to shareholders and stakeholders can lead to improvements of their overall operational and financial position.
Water-related challenges and risks require context-based solutions. Companies need to assess risk, craft corporate strategies to address risk and drive continual improvement and enact credible corporate water stewardship policy that informs actions from the board room to the shop floor.