Water Scarcity Analysis: An Essential Part of Estimating Climate Change Risk

Water Scarcity Analysis: An Essential Part of Estimating Climate Change Risk

April 7, 2009 06:54

By Rebecca Brenia, Hartford Office, McCarter & English

A new report from Ceres and the Pacific Institute clarifies for the rest of us what farmers in Southeastern Australia and India have known for some time now-- climate change is contributing to water scarcity, and water scarcity threatens the bottom line for business in many industry sectors. 

The report, Water Scarcity & Climate Change:  Growing Risks for Businesses and Investors echoes the warnings of the Intergovernmental Panel on Climate Change, which has written that “climate change will challenge the traditional assumption that past hydrological experience provides a good guide to future conditions.”  Simply stated, climate change is causing significant changes to all components of the freshwater system.

Although it is widely known that climate change poses regulatory and reputational risks to greenhouse gas-emitting sources, such as power plants and industrial boilers, similar challenges faced by water-intensive businesses have received significantly less attention, even from entities seeking to understand and manage their overall global warming risk.  Semiconductor manufacturing, for example, is an extremely water-intensive business.  According the report, a single disruption to the water supply of a semiconductor manufacturing facility could set back production an entire quarter.  Alternative fuel enterprises like ethanol, first-generation biofuel, and oil sands development utilize enormous quantities of water, leading to a tension between water use and energy production.  In an editorial that appeared in The Economist, Nestle Chairman Peter Brabeck-Letmathe stated that he is convinced “ … we will run out of water long before we run out of fuel.”

The report warns companies and their investors that now is the time to consider water scarcity.  The threat of water disruption is imminent, with certain regions in the U.S. already facing water scarcity challenges.  In California’s San Joaquin River Valley, for example, a court ruled that agricultural diversions of water would be reduced for the purpose of maintaining a minimum in-stream flow.  State and local governments are moving away from subsidized water pricing, increasing the cost of acquiring water for all uses.  As water becomes more scarce, the likelihood of regulation increases, as does the risk of reputational harm for businesses perceived to be using more than their fair share of a community’s water supply.

Ceres and the Pacific Institute are recommending the following actions to help companies evaluate and address water risks:

1.  Measure the company’s water footprint (i.e., water use and wastewater discharge) throughout its entire value chain, including suppliers and product use.

2.  Assess physical, regulatory and reputational risks associated with its water footprint, and seek to align the evaluation with the company’s energy and climate risk assessments.

3.  Integrate water issues into strategic business planning and governance structures.

4.  Engage key stakeholders (e.g., local communities, non-governmental organizations, government bodies, suppliers and employees) as part of water risk assessment, long-term planning and implementation activities.

5.  Disclose and communicate water performance and associated risks.

Taking these steps now will position businesses to mitigate physical, regulatory, and reputational risks they might face in the event of water disruption.  The full report is available online at http://www.pacinst.org/reports/business_water_climate/index.htm.

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The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

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