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April 2013, No. 1 Vol. L, Water

WATER CHALLENGES: SHARED RISK AND SHARED INTEREST

As many of us are aware, water poses one of the most critical sustainable development challenges of the twenty-first century. Overall demand for water worldwide has increased steadily over the last century and is expected to continue to do so. Increasing water demand, limited supplies, pollution, inadequate infrastructure and lack of management capacity have led to water scarcity in many regions. Overallocation of surface water has led to insufficient instream flows and therefore damage to important riparian habitats and aquatic systems. Growing cities struggle to build infrastructure that keeps pace with population growth, while those in rural communities do not have enough water to fuel their livelihoods or must travel many miles to access clean water, exposing them to harm and hindering their economic productivity.

Historically, access to water has been an important strategic concern for many businesses. However, recent global trends suggest increased threats to the supply, quality and reliability of water services as well as changing stakeholder expectations, thereby making water a much greater risk to business viability than in decades past. Growing demand and competition mean that there may not be enough of the key resource to maintain production. Water pollution is significantly increasing the cost of pre-treatment for numerous industries. Aging infrastructure and a lack of government management capacity are leading to insufficient and inconsistent water deliveries, sometimes stalling industrial activity. As these challenges and demands escalate, governments tighten controls on water use and wastewater discharge as a means of mitigating depletion and degradation of resources, while communities and civil society groups are more likely to hold companies accountable for unsustainable practices.

At the same time, governments and civil society are having great difficulty in effectively advancing the goals of integrated, sustainable water resources management for the public good due to lack of resources and political will, particularly in the Global South. Both public and private actors have begun to recognize that solving global water challenges is not a solitary endeavour. This awareness has led to increased interest in undertaking coordinated, collective action that leverages the technical strengths, resources, and convening power of the public and private sectors, as well as civil society, academics, communities and others, to achieve more sustainable water management.

WATER-RELATED BUSINESS RISKS: INSIDE AND OUTSIDE THE COMPANY FENCE LINE

Traditionally, corporate water management has consisted of implementing operational improvements (e.g., water use efficiency) at a company's own facilities. This process has resulted in notable water savings and pollution reduction, mitigating environmental and social impacts and often reducing water and related costs (i.e., energy, chemicals) to the business. However, while wasteful or polluting operations certainly create risk for companies, water-related business risks are driven as much, if not more, by unsustainable watershed conditions over which companies have limited influence, such as water scarcity, pollution, or weak water governance.

For example, the hydrologic context is perhaps, not surprisingly, a key factor in determining water risks. A region's physical water availability often has bearing on the functioning of ecosystems and access to water services for industry and local communities. As water scarcity becomes more pronounced, there is less water supply to meet the range of human demands as well as the instream flows needed to support aquatic habitats. As water scarcity worsens, the likelihood that companies will have insufficient water supplies to maintain operations increases, as does the likelihood that industrial water use will result in negative social or environmental impacts that ultimately jeopardize companies' legal or social licence to operate.

The sociopolitical context and the extent to which people have access to water services is another key component of corporate water risk. Limited community access to water and/or inequitable allocations increase the likelihood that industrial presence in an area will, in reality or perception, contribute to social unrest. An industrial facility with plentiful water allocations and an area where marginalized communities do not have sufficient water services can lead to challenges for the company.

The political and institutional context also plays a key role in determining a region's ability to adapt to ensuing water challenges, such as climate change and therefore the extent to which they pose risk for businesses. An industrial facility's exposure to risk thus depends on the ability of public water policy and management to deliver water services, to address water-related risks over the long term, to create effective allocation regimes, and to develop and enforce water quality regulations. Failures in water policy and its implementation can lead to insufficient or inconsistent water deliveries to industry, among other challenges.

SHARED RISK AND THE ROLE OF BUSINESS IN CROSS-SECTORAL COLLABORATION ON WATER

The reality of water risks stemming from both company practices as well as watershed conditions means that companies have an interest in ensuring the efficacy of water management in the watersheds in which they operate¡ªan interest which governments, civil society, communities and others share. As such, many companies are seeking to encourage and facilitate improved water management by:

• Encouraging and underwriting efficient water use practices across a watershed.
• Assisting with finance of local water supply and sanitation, infrastructure, and/or operating infrastructure (e.g., wastewater treatment) for community and municipal uses.
• Working with communities to improve access to water services.
• Establishing or engaging in participatory platforms and other democratic processes for water governance decision-making or oversight.
• Advocating for or contributing to the development of effective and equitable policy and regulations.
• Sharing or gathering data related to water resources, and/or supporting research, advocacy and monitoring.
• Advancing public awareness of water resource issues.

However, many companies are realizing that such projects are most efficient and transformative when conducted in collaboration with governments, civil society, communities and others. Companies seek out partnerships with other organizational actors in order to gain other perspectives, build on internal competencies, increase leverage, enhance credibility and pool resources to address shared water risks. Specifically, from a business perspective, collective action allows for:

• Clear articulation of problems, shared ownership of solutions, and clarity of joint purpose.
• More informed decision-making by the business initiator and other parties to the engagement.
• Broader scope and depth of motivation and momentum in support of water-related improvements.
• An expanded pool of expertise, capacity, or financial resources focused on fostering change.
• More durable outcomes with strong support by the engaged parties.
• Establishment and maintenance of credibility and legitimacy with critical interested parties resulting in a stronger social licence to operate across all aspects of community relationships.
• Stronger, more sustainable water governance by engaging multiple stakeholders.

From the perspective of non-corporate actors, collaboration with the private sector on shared water goals can offer many advantages such as technical expertise, significant monetary resources, improved data, heightened visibility and access to decision-making, and state-of-the-art technology.

CROSS-SECTORAL COLLABORATION IN ACTION: CURRENT EXAMPLES OF COLLECTIVE ACTION

Good examples of mutually beneficial cross-sectoral collaboration are emerging all over the world in both urban and rural settings. For example, Intel Corporation operates one of the world's most sophisticated semi-conductor manufacturing facilities in Chandler, Arizona, located in the southwestern desert region of the United States. When planning this facility, Intel engineers knew that operating in an arid climate would require them to look beyond Intel's own "fence line" for other sustainable water-related opportunities and solutions. As a result, Intel teamed up with the city of Chandler to devise a comprehensive and collaborative approach to water management. That approach included building an advanced reverse osmosis facility to treat clean rinse water from Intel's manufacturing facility to drinking water standards before being returned to the municipal groundwater source. Since 1996, this strategy has replenished more than 4 billion gallons of water into the aquifer. Intel also established an agreement with the local water authority to reclaim millions of gallons of processed wastewater for the company's cooling towers, pollution abatement equipment and onsite landscaping in order to irrigate nearby farmland each day.

Sasol, a global integrated energy and chemicals company with its main production facilities in South Africa, has recognized water security as a material challenge to its operations, which are highly reliant on the inland Vaal River system. Sasol uses about 4 per cent of the catchment yield, while municipalities use approximately 30 per cent, of which water losses can be as high as 45 per cent due to the aging infrastructure. Sasol approached municipalities to implement water conservation initiatives. One such project used Sasol funds to repair pressure management with a township, thus reducing water use and boosting water supply. Funded by Sasol, this project saves 28 megalitres per day at a cost of $500,000. By comparison, a project to improve internal water use efficiency at a Sasol plant, which was also being considered at the time, would have required $50 million and saved only 18 megalitres per day.

Suez Environnement has sponsored and moderated efforts in several watersheds to convene a wide range of stakeholders in discussions about water quality, water quantity and overall watershed health. Included in these discussions, among others, were agricultural operators, a community of stakeholders not previously engaged by Suez Environnement. Initial discussions focused on the substantial monitoring data collected by Suez Environnement. This information pointed to the critical role agricultural operations played in water quality in the affected watersheds and identified a set of agricultural practices that could lower water-quality impacts.

FOSTERING INCREASED CORPORATE ACTION ON WATER AND PREVENTING PERVERSE OUTCOMES

Though companies, non-governmental organizations, communities and governments have a shared interest in sustainable water management broadly, there are many specific elements where interests might diverge. For example, while the system as a whole benefits from water allocations that prevent wasteful use, specific actors have an interest in maximizing their allocation in relation to other users. Indeed, these short-term conflicts have informed many corporate water strategies and policies for the last several decades, leading to widespread scepticism of corporate motivations and criticism of undue corporate influence on water policy decisions, despite the potential benefits of such strategies. An exhaustive presentation of how companies can work to responsibly engage with external interests on shared water challenges can be found at .

While these potential conflicts are certainly very real, emerging practices from leading companies have suggested that companies are increasingly pursuing water strategies that prioritize long-term viability by investing in sustainable water management over short-term profit. To encourage more companies to engage meaningfully in water management, there remains a need to (1) raise awareness in the business community about water-related challenges; (2) promote the ability of groups facing similar water-related challenges to communicate with one another (a role that is beginning to be filled by the CEO Water Mandate's recently launched Water Action Hub); and (3) improve the ability of stakeholders to independently assess the effectiveness of corporate collaborations such that good practices are rewarded and irresponsible practices are disincentivized.