It is in the best interest of companies to respond with practical programmes to droughts, dam capacities, effluent penetrating our rivers, purification, maintenance shutdowns, burst pipes, general infrastructure neglect and non-upgrades, which is seen as a Potential Business Water Risk.
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.
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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.
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.
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.
Adapted from an article by Jess Vujovic, a research analyst and Alex Hetherington a corporate sustainability adviser at Carbon Calculated.