Why business must tap into strategies that ensure a stable water supply
It is in the best interest of companies to respond with practical programmes to the drought, which is seen as a long-term trend of scarcity and risk
SA is in the midst of its worst drought since the beginning of the 20th century. Dam levels have plunged, and strict water restrictions have been implemented across the country.
The ripple effects have been felt in a number of sectors and recent media reports claim R2bn in resultant trade losses. South African brands such as Associated British Foods and Tongaat Hulett report that the drought has cost them about R495m and R325m, respectively, in 2016.
Scientists have indicated that this drought may be a red flag, pointing towards a long-term trend of water scarcity and risk. It is in the best interest of business to respond in a proactive and strategically responsible manner.
SA is the 30th most dry country in the world, experiencing variable rainfall and receiving only half of the global rainfall average. According to the South African National Biodiversity Institute, less than 9% of SA’s rainfall finds its way into rivers and a mere 5% recharges groundwater in aquifers.
The World Wide Fund for Nature (WWF) has stated that 98% of SA’s dammed water is already allocated for agricultural, industrial and residential use and there are few remaining feasible dam sites to exploit. This leaves little space for social or economic growth.
For future water use, we will have to do more with less. Analysts have predicted that climate change will have implications for South African water quantity and quality, including loss of water due to increased temperatures and higher evaporation rates; decreased water quality due to higher salt content; and compromised infrastructure as a result of ageing and poorly managed systems needing to cope with climatic demands.
For business, the risks are multidimensional. Limited or polluted water stocks will compromise growth and profitability, in turn reducing investor and stakeholder confidence.
Improper water management can force businesses to shut down or relocate operations, as happened to Coca-Cola in northern India in January when farmers and activists complained against its overuse of local groundwater. Water, therefore, places additional risk on brand value.
Businesses may also face regulatory risks as governments begin to impose higher tariffs and penalties and enforce licence requirements to discourage improper water use.
In SA, a number of provinces have instituted hefty fines for those who do not adhere to new restrictions.
It is also expected that water tariffs will rise in a bid to improve infrastructure. Furthermore, the Department of Water and Sanitation has estimated that R700bn is needed over the next 10 years to support the effective management of the water sector. Of this, only 45% is budgeted by the government, with the remainder likely to be secured through tariff hikes.
In order to mitigate these water risks, business needs to focus on improved management and operational practices. A key initial step is for companies to assess their exposure to water risk. This is particularly important for companies which keep a wide portfolio of sites. There are a number of tools that can help with this; the best being the recently launched WWF water risk filter, which allows firms to assess their level of risk at basin or catchment scale.
The tool covers about 35 industries – spanning from agriculture to telecommunications – and 120 commodities, using 33 basin indicators. In addition, guidance on appropriate response action is provided.
Businesses should also conduct audits to identify opportunities for reductions and inherent efficiencies.
As a starting point, companies should aim to grab low-hanging opportunities such as fixing leaks from pipes and other relevant infrastructure, and educating staff about water awareness in the workplace.
Ecophon, a global manufacturer of acoustic ceilings, reduced their water usage by 85m³ per year at one of its sites through a staff awareness campaign. More complex opportunities such as the installation of low-cost water saving or recycling technologies can then be tackled.
Relevant procedures should be implemented as part of a more formal management system. The benefit of this is that businesses will inevitably receive monetary savings.
Businesses that cut down on water use will also see reductions in their energy bills.
SABMiller — now part of AB InBev — reported cost savings of about R1.65bn in 2015 from water and energy initiatives. Since 2010, the company has seen accumulated savings of more than R4bn.
Importantly, businesses also need to identify water risks in their supply chains and manage them accordingly. The National Business Institute asserts that companies who fail to do so may see the effects on their performance such as increased input prices or disruptions in supply.
Business needs to look further into the future and understand that water is a threat to operations
In 2015, African Rainbow Minerals reported a cost of R359m — 34.5% of total reported revenue for that year — as a result of production disruption due to water supply challenges.
In its 2016 water disclosure response, Mediclinic International reported high costs due to interruptions in the water provided by local authorities and estimated to have survived 3,000 hours without a dependable water supply. In SA, managed water risk appears to be limited to only a handful of companies.
This is illustrated by the fact that just over half (56%) of the 59 selected JSE-listed firms responded to the Carbon Disclosure Project (CDP) water questionnaire in 2017 – a total of 33 companies.
This is a relatively low number when considering that up to 80 of the 100 selected companies responded to the CDP’s climate change questionnaire. A possible explanation for this is that business still does not view water as a long-term risk. Cost could also be a driving factor.
While environmental issues such as climate change are associated with tangible and widely publicised financial linkages such as carbon tax and energy price surges, water remains relatively cheap with little indication of regulatory price increases in the future.
Business and industry need to look further into the future and understand that water is a long-term threat to operations. Once this is understood, like all risks, there are opportunities.
If businesses shift their mind-set to a strategic one, water can and should become a catalyst for pragmatic decision-making. This might include new technologies, adapting processing systems and relocating operations to more water-secure sites.
We have reached a tipping point and businesses need to take action now. Such action on water is the mark of leadership.
• Vujovic is a research analyst at Carbon Calculated and Hetherington is a corporate sustainability adviser