Value Diluted: Water As A Business Issue

Via The Economist, a brief commentary on how water is becoming a growing business problem:

IN 2013 a Chilean court ruled that Barrick of Canada, the world’s largest gold-mining firm, could not go ahead with its Pascua Lama mine until it could guarantee not to pollute downstream water or damage nearby glaciers. The company eventually suspended the project, taking a $5 billion write-down. This week it said it was in talks with Zijin Mining, a Chinese state-owned firm, to become its partner, if the development ever restarts.

Water—its scarcity, quality and the regulations affecting it—is becoming a new corporate headache. A survey by CDP, a research firm that works for institutional investors, finds that in almost two-thirds of the world’s largest listed companies responsibility for dealing with water problems lies at board level. An increasing number of bosses say water is or will soon become a constraint on their firm’s growth. They are right to worry, but most firms are not doing much about the problem.

Shortages do not only affect those that use millions of gallons in their industrial processes (miners, say) or whose products are made of water (beer and soft-drinks makers). It also affects those whose inputs depend on the stuff (food companies) and, indirectly, almost all firms that do business in water-stressed countries, which include China.

According to the CDP survey—sent to 2,200 firms—two-thirds of respondents think water risk could produce a substantial change in their business, mostly within three years. For example Diageo, a drinks firm, said the growth in its operations in Nairobi is likely to be constrained within five years by growing scarcity there.

But not many firms make detailed assessment of such risks. General Motors says it requires all component suppliers to report the water risks they run. But 60% of respondents to CDP’s survey do not vet their supply chain. Every year, Lafarge, a French cement-maker, carries out a risk assessment of river basins in areas where it operates. But only 25% of companies do assessments at the watershed level.

Companies’ reactions to water problems have been patchy, too. Diageo says it has cut its total water usage by almost 1m cubic metres in its current financial year. Unilever, a consumer-goods company, says its factories will use the same amount of water in 2020 as they did in 2008, despite higher forecast output.

But targets like that are uncommon. Two of the industries in which firms say they are most exposed to substantial water risks are oil and gas, and power utilities (with over 80% of respondents reporting this in each case). Yet only 14% of utilities and energy firms say they have targets for cutting their water intake. Many companies take the issue seriously but it is hard to conclude that most do. Only half the firms to which CDP sent its questionnaires even bothered to reply.

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