Water Sustainability in Industry
Water Sustainability in Industry: Understanding Challenges and Opportunities for Investors
Understanding Industry’s Water Usage
When discussing industrial water usage, it’s important to understand key terms:
- Water withdrawal refers to the total amount of water a company uses, regardless of discharge.
- Water consumption is the difference between withdrawal and discharge.
- Water scarcity refers to the lack of sufficient available water resources to meet the demands of water usage within a region.
- Water stress is the degree of water scarcity in a region.
- Water pollution measures a company’s wastewater discharge and its contents.
- Water intensity is the amount of water used per unit of production or revenue.
Many industries heavily rely on water, with agriculture being the largest consumer, using about 70% of the world’s freshwater for irrigation, fertilisation, and other processes. The fashion and textile industry is the second-largest, primarily due to cotton production and fabric dyeing, while other significant users include energy production, meat processing, and beverage manufacturing. The tech industry has also emerged as a major water consumer, with data centres requiring vast amounts of water for cooling, electronic device manufacturing being water-intensive (e.g., 14,000 litres for a smartphone).
The Water-Energy-Food Nexus
Water is vital for energy production, used extensively in cooling systems for thermoelectric power plants and in the extraction and processing of fossil fuels. It’s also essential for hydroelectric power generation. Conversely, energy is required for water extraction, treatment, and distribution, as well as for wastewater management and desalination processes.
In agriculture, water is fundamental for irrigation, livestock maintenance, and food processing. Energy is needed to power farm machinery, transport food products, and operate food processing facilities. The agricultural sector, in turn, can contribute to energy production through biofuels.
These interdependencies mean that changes in one sector invariably affect the others. For instance, increased biofuel production can lead to greater water consumption and potentially affect food prices. Similarly, water scarcity can impact both energy production and agricultural yields.
Measuring Corporate Water Footprints
Accurately quantifying a company’s freshwater footprint presents significant challenges due to diverse uses across industries, varying water stress levels in different regions, and complexities in measuring pollutant discharge. The lack of standardised reporting methodologies and limited data availability, especially in supply chains, further complicate this task.
Nearly two-thirds of water consumption occurs within corporate supply chains, highlighting the importance of considering indirect water usage. This underscores the need for companies to engage with their suppliers and implement comprehensive water management strategies throughout their value chains.
Several methodologies have been developed to assess corporate water use, including the Water Footprint Network (WFN) methodology, ISO 14046, and the CDP Water Security questionnaire.
Regulatory Landscape and Technological Innovations
Various international frameworks address water issues, including the UN Sustainable Development Goal 6 and the EU Water Framework Directive. Increasing pressure for transparency has led to mandatory water reporting in some jurisdictions and the development of voluntary disclosure frameworks.
Mandatory water reporting requirements vary globally. The EU’s CSRD mandates water use disclosures, while the UK requires water quality reports and risk disclosures for large companies. The US SEC climate ruling mandates disclosures on water-related risks and usage, and India, Malaysia, and New Zealand have similar requirements for large companies and public entities.
Technological innovations in water management include smart water metering, advanced wastewater treatment, and precision agriculture techniques.
Investors’ role: ‘Water Neutrality’ and ‘Water Stewardship’
Water neutrality , the practice of reducing and offsetting water consumption to achieve no net increase in overall water demand, encompasses two primary aspects: extracting less water from water-scarce regions than nature can replenish, and discharging fewer pollutants than the environment can naturally process.
Water stewardship, the responsible use and management of water resources that is socially equitable, environmentally sustainable, and economically beneficial, goes beyond neutrality, involving efficient water use and conservation measures, watershed protection and restoration, community engagement and collaboration, and advocacy for sustainable water policies.
Investors evaluating a company’s water neutrality and stewardship should consider factors such as the proportion of revenue derived from water-stressed regions, the company’s water policy and disclosure practices, and their engagement with local policymakers and implementation of water-efficient technologies.