Complementary Tools to Evaluate Water Risk and Response

Around the world and throughout every sector of the economy, companies and investors are increasingly aware of risks associated with their dependence on fresh water. For example, a recent report by the Carbon Disclosure Project’s Water Disclosure branch looked at water-stressed South Africa and revealed that 85% of water-intensive companies in the country are exposed to water risks, with 70% expecting to face water impacts to their operations within the next five years.

A Proliferation of Tools

In response to the growing urgency of water risk, there has been a proliferation of tools, frameworks and surveys aiming to help companies, investors and others understand and respond to these water risks. The different tools and approaches provide a valuable diversity of expertise and a better understanding of the nature of water stress, but it is not always clear which tools should be used by whom, for what, and how they overlap or complement one another. Groups, including the World Resources Institute, are making efforts to clarify the increasingly complex world of water risk and ensure consistency across various efforts. WRI has joined with the U.N. CEO Water Mandate, Carbon Disclosure Project, PricewaterhouseCoopers (PwC), and the Global Reporting Initiative to bring more consistency to the water risk information disclosed by companies to their investors. The CEO Water Mandate, an international effort to harmonize water disclosure practices, is also working alongside PwC to provide greater clarity by describing how existing tools, like WRI’s Aqueduct, help understand water risk.

Another way to reduce confusion is to work closely with companies and investors to help them better understand how different water risk tools can provide more integrated and complete water risk solutions. To this end, the WRI’s Aqueduct team has been collaborating with Ceres, an influential network of investors united in an effort to accelerate and expand the adoption of sustainable business practices. The Aqueduct tool for mapping indicators of geographic water risks complements Ceres’ Aqua Gauge framework for assessing companies’ water management responses by enabling investors to compare water risks across geographic regions. Comparing water risk conditions from place to place is necessary to any effort to assess how effectively companies are responding to external water risks.

Aqueduct: Providing the Context

Aqueduct’s foundation is a comprehensive database of indicators of water risk. These indicators range from physical water availability to water quality to local awareness of publicly available water information.

Aqueduct’s online mapping tools let users examine these indicators in global and river-basin level maps. Because water is inherently a local resource, these maps provide critical geographic context to analyze a company’s water use across its operations. An investor trying to better understand a portfolio company’s risk exposure can input the location of the company’s key facilities and see those locations graphically displayed on maps depicting relative risk. Aqueduct also allows managers to look at future trends in water supply risk using water stress projection maps based on a number of plausible climate change scenarios.

Many companies are already using Aqueduct’s global maps and projections as an initial screening tool to understand areas where their operations or supply chains face their greatest risk.

Aqua Gauge: Examining the Response

The context provided by Aqueduct’s water risk maps is the first piece of the risk puzzle. To understand a company’s exposure to water risk, an investor must also look into the company’s ability to manage and respond to external water conditions. Aqua Gauge gives companies and investors the framework they need to assess a company’s water management. This tool helps managers and investors alike determine what questions they need to ask and what data they need to collect to better understand a company’s capacity to manage its water resources and develop smart water strategies. It also provides companies and investors with a means of benchmarking themselves against leading practices in water risk management.

The Power of Aqueduct and Aqua Gauge Together

To help companies and investors better understand the power of using Aqueduct and Aqua Gauge together, I will be joining the Ceres team at its annual conference in Boston on April 25th and 26th.

At the conference, WRI, Ceres and Coca-Cola will host a workshop on water risk tools for companies, investors and NGOs. We will share hypothetical case studies that examine how Aqueduct’s water risk maps and Aqua Gauge’s framework can be combined to analyze and manage the water risks. This analysis will be important for companies undergoing mergers and acquisitions, joint ventures, due diligence for socially responsible investing, and supply chain decisions. This workshop will provide companies and investors with hands-on experience in creating a complete picture of a company’s exposure to water risk, and its capacity to manage and mitigate that risk.

This is just one of many collaborative efforts in the world of water risk assessment. Working together, organizations like WRI, Ceres, and our other peers can help the private sector and water managers achieve a common understanding of water risks and the responses that will be needed to sustain economies, communities and the environment.