December 13, 2016
Are We Looking at a Water Scarcity Risk?
Water Concerns: Assessing & Managing Water Resources
If current trends in global population growth and economic development continue, the pressure on already scarce water resources will only continue to grow, impacting individuals, countries, and companies alike.
Global demand for water – necessary not only for life but also for manufacturing, agriculture, and energy – will exceed sustainable supply sometime between 2030 and 2040 unless there are dramatic changes in how water supply is managed. It is imperative for companies to consider future constraints on the availability of water as an input in their investment and supply chain risk evaluation criteria – especially companies operating in countries with weak rule of law and regulatory structures.
If not properly controlled and regulated, the following three factors will lead to a depletion of water resources and an increased potential political instability:
Uncertainty of future availability: The distribution of water resources will be impacted by changing climate and weather patterns. Users may be incentivized to consume water unsustainably creating the potential for resource depletion. This is the most unpredictable variable and thus, the most difficult to evaluate and mitigate. Though the problem is global in scale, some communities will experience a much more rapid and drastic loss of access to needed water supply than others.
Competing user groups: In any one location there could be users from a variety of groups – farmers, industry, energy companies, and individual consumers – all competing for use of the same resources. Each group has the ability to influence water resource development and management. Companies should pay attention to each group of water supply shareholders and the influence that they may have over the regulatory process that impacts usage limits, price, and availability of water resources.
Water is a cross-border resource: Water resources are not bound by any one jurisdiction. Municipalities, cities, countries, or regional institutions may all regulate water usage to greater or lesser degrees. Each entity has its own incentives and goals which may turn out to be contrary to others. Upstream communities are particularly disincentivized from sharing resources with downstream communities. While the potential for full-on violence is rare, companies still need to pay attention to any inter- or intrastate instability that may occur in the period before the dispute is resolved.
Companies utilizing large volumes of water in manufacturing processes may inclined to take advantage of lower prices in certain regions, especially in developing nations. However, this approach is shortsighted, ignoring how the potential depletion of resources may lead to political instability that could damage the bottom line.
Prudent companies must incorporate a water risk profile into their due diligence analysis, being sure to consider the above three factors. A thorough assessment may prove that proactive investment in the water access needs of the communities in which it operates may be valuable to its long-term bottom line.
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