According to the UN¹, one-third of the world population will be exposed to water stress by 2025 and demand for fresh water will exceed supply by 40% looking out to 2030. What will be the consequences of this for companies?

Water stress describes a critical situation in which available water resources are lower than demand. In a press release dated 23 March², the French geological survey BRGM indicated that groundwater levels in France were 80% lower than normal. There is an urgent need to put the world on the right track to attain the Sustainable Development Goal (SDG 6) of water and sanitation for all by 2030.

The UN report also indicates that 10% of the world population lives in countries where the level of water stress has reached a high or critical level. The World Resources Institute³ has identified the principal regions of the world that are highly exposed to this risk (see map below). This suggests that there is a genuine risk for companies operating in or heavily exposed to these countries.

Worldwide water consumption is divided in the following manner:

70% withdrawals coming from agricultural supply chains;
22% consumed by industry (principally composed of the production of electronic equipment and metal products according to the CDP⁴);
8% household consumption.

The risks linked to water stress can put into question the long-term viability of company business models.

A company that does not control its water consumption over its entire value chain is effectively exposed over the short and medium term to obvious risks such as:

reputational risk linked to controversies concerning the amount of water used for the production of a good or services when access to and the availability of water becomes scarce;
regulatory risk, potential leading to limits on access to and supplies of water and increasing the cost of its use.

The current situation should push companies to review their relationship with and use of water and their management of this resource, but also to rethink their production models.

A paradigm change would notably lead to monitoring of water consumption and water intensity, control over the use of pollutants, installation of anti-pollution processes, commitment to sustainable practices and R&D investments in order to find less water-consuming alternatives. In order to assure the comparability and monitoring of changes in their water consumption, we plan to use a key indicator applicable to all companies corresponding to the volumes of water directly and indirectly pumped and purchased by the company over its entire value chain as a function of its revenues.

The World Water Day held last 22 March served as an occasion to once again emphasise the importance of freshwater and advocate the sustainable management of this natural resource. The more proactive a company in dealing with this risk, the more it will reduce the financial impact and assure the long-term viability of its business model. This threat of water shortages is correlated to the availability of surface water and groundwater, which in turn depends on changes in climatic condition as well as pumping linked to human activities. In this regard, zones in which groundwater is being depleted can be found throughout the world.

Water stress is one of the most important physical risks linked to climate change. Already in 2016, the World Bank was warning⁵that water scarcity exacerbated by climate change could cost certain affected regions up to 6% of their GDP by 2050 due to its effects on agriculture, health and revenues, potentially leading to migration and even conflicts. Investors must take this into account and regularly address the subject of water stress in their shareholder dialogue.

Sources:
¹ UN, 2023 United Nations World Water Development Report
² BGRM, press release Groundwater tables on 1 March 2023
³ WRI: 17 Countries, Home to One-Quarter of the World's Population, Face Extremely High Water Stress, 2019
⁴ Carbon Disclosure Project: A WAVE OF CHANGE - The role of companies in building a water-secure world, 2020
⁵ World Bank: Climate-Driven Water Scarcity Could Hit Economic Growth by Up to 6 Percent in Some Regions, 2016

Water stress: what impact on company business models?

Dernières Actualités