Untapped Potential

The conclusion of World Water Week, which wrapped up on September 5 in Stockholm, seems an appropriate time to reflect on the ways in which this seemingly ubiquitous substance has been permeating our lives and our work lately.  Given the 2014 theme of ‘energy and water’, it is unsurprising that many of our references to water are linked to energy – from the hydraulic fracturing phenomenon that has impacted groundwater in much of the eastern U.S., to the oil sands in Alberta, to the need for desalination plants to counter increasing water shortages in urban environments. 

But how can companies do more to address these water and energy challenges?  Nestle has recognized water as one of its three pillars in creating shared value, but we have seen concerns about water quality and accessibility rippling through not just the food and beverage industry, but also our conversations with other resource-reliant industries (extractives, textiles, hoteliers). In the wake of Veolia’s efforts to quantify the true cost of water, businesses are also becoming increasingly aware of such risks as increased capital costs for water, reduced water allocations due to disputes, and the multiple implications of water shortages.

Shared Value and Water

In conducting our work, we have come to recognize that companies have ample opportunity to influence water access and availability in their relative operational spheres, addressing a clear social challenge in a manner that allows for business returns across all three levels of shared value creation.

  • New Products and Markets
    We see opportunities for innovation in three main areas:  products that reduce water consumption (for example, aerating showerheads or low-flow faucets), products that improve water quality (such as water filters or chemical purifiers), and creation of new uses for byproducts that increase water availability (such as treating and selling excess water from industrial processes for agricultural uses). In these categories, but particularly the last two, there is also a possibility to access new markets by developing products that are customized such that lower-income consumers or those operating in resource constrained environments are able to thrive.  One such product innovation we have previously highlighted in our white paper ‘Creating Shared Value in India’ is in the field of irrigation technology. Jain Irrigation Systems Ltd. (JISL) recognized small landholder farmers’ need for efficient irrigation systems. By developing and promoting micro-irrigation systems that significantly reduce water use, JISL has gained a significant foothold in an underserved market and also improved the livelihoods of smallholder farmers by increasing the quality and sustainability of agricultural production.
  • Redefining Productivity in the Value Chain
    The corporate value chain perhaps presents the most natural intersection with the water sector, and there are abundant possibilities to directly reduce industrial water consumption by introducing more water efficient processes, and customizing production inputs and production processes such that they require a lower quantity of water.  Some examples of more water efficient processes could include: conducting frequent water audits to identify and repair leaks, installing low-flow appliances when possible, and / or retrofitting greywater systems for non-potable water reuse.  In terms of customizing production inputs in a manner that requires less water, one example might be an apparel manufacturer that invests in developing textiles that require less water in the production process.

    Companies can further extend their efforts in direct operations to impact the quantity and quality of water in their operating ecosystem. By working closely with smaller companies in their local supply chains, multi-national corporations could increase access to and/or awareness of process innovations that could reduce costs to their suppliers while improving the quantity or quality of available water. More specifically, a food and beverage company could, for example, consider both downstream and upstream investments in reducing water consumption: working with local fruit producers to reduce water consumption by introducing more efficient irrigation processes, with fruit processing companies to reduce water used as part of the juicing and preservation process, and with bottling companies to reduce water used in preparing the final product for distribution.

  • Building clusters and framework conditions
    Corporations can complement their more direct engagements in product innovation and value chain productivity by strengthening the enabling environment for increased water efficiency. Particularly in emerging and developing economies, and in more arid environments, companies can advocate for local stakeholders to create financial incentives that encourage more efficiency in industrial operations, and / or institute water rights markets with appropriate water valuation and associated mechanisms for trading water rights among users.

    In cases where the lack of a reliable water supply has direct business consequences, companies may also consider investing in strengthening local water infrastructure, either by partnering with local governments or by ensuring that business-as-usual investments in desalination or water treatment facilities are of sufficient capacity to also serve the local community. One such example we have noted is the Ayala Group in the Philippines, which chose to invest in strengthening water infrastructure in the nation’s capital by taking a controlling stake in the Manila Water Company, with the goal of providing safe, reliable water to underserved, low-income households while reducing costs from inefficiencies and illegal connections.  Although the bulk of initial capital investment is borne by Manila Water Company, implementing an inclusive business model and working in partnership with local communities and municipalities has created positive incentives for all stakeholders to ensure the success and sustainability of the program.

As highlighted by the focus on the Sustainable Development Goals and anticipated 2015 Climate Agreement during World Water Week, the compelling reasons for increasing innovation in the water sector are made increasingly urgent by climate change, with the Stern Review on the Economics of Climate Change anticipating that a temperature rise in excess of 2°C could result in as many as 4 billion people experiencing growing water shortages, particularly in Africa, the Middle East, southern Europe, and Latin America. Given that such a temperature increase would have significant consequences not only for drinking water but also on the availability of water for business use, we would love to hear your thoughts on the opportunities you see for shared value creation.

What intersections with or implications for water do you see in your work? 

Do you have other examples to share of companies taking a lead in this space?

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