Tuesday, March 13, 2007

Water: The next oil?

Let me admit right from the outset that this attention-grabbing title was not conjured from my own mind! Today I read a tidy little report issued by Insight Investment (UK) last week and I must give them all the credit for thinking it up.

Its a great report, and a timely reminder that climate change is not the only environmental issue that poses risks to companies. The Insight Investor report on water walks the novice reader through the basic equation for disaster that awaits us when it comes to water:
* 97% of all water on the globe is seawater, of the remaining 3% that is fresh, only 0.5% is not frozen and is accessible to humans mainly via rivers, lakes and underwater aquifers
* Agriculture and industry are the main users of available freshwater (irrigation, cooling, energy generation, chemical reactions, waste disposal, and as an ingredient for foods and drinks)
* Underground aquifer depeletion is occurring due to overuse by humans (domestic and industrial), and climate change will make it worse

All of this = business risk.

The risks associated run from higher operational costs (capacity constraints, supply chain disruptions, compliance expenditures, plant closures) and brand risk that can result when companies compete with the local communities for access to water. The investors at Insight recommend the development of effective, proactive strategies for dealing with water, and warn companies that ignore water "do so at their own peril." Now that is some refreshing insight from an investor!

If you arent aware of it yet, search around for case studies and discussions online about Coca Cola's water troubles in India. By overdrawing and polluting some local aquifers during the production of Coke's products in some provinces the local farmers, manufacturers, and communities were left without enough to optimize their own needs. This has resulted in severe reputational damage, closure of major plants, and difficulties in siting new facilities. Coke has since recognized the issue as a strategic priority and reports its targets and performance using the GRI reporting indicators on water.

Imagine the headache and heartache they could have saved if they had recognized the importance of this issue before it hit the crisis point?

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