While many of us take the availability of clean water for granted, water scarcity is becoming a critical issue in many parts of the world, with far-reaching social, environmental and economic implications. Two-thirds of the world’s population will live in water-stressed areas by 2025, according to the United Nations. Water shortages are already having severe impacts on companies, and management accountants have a key role in helping companies manage this challenge, as outlined in the new CGMA report Thirsty planet: Business responses to water scarcity.
Water-intensive industries, such as beverages, mining and agriculture, are most at risk, and this is where we find many of the companies that are leading the discussion and implementation of water sustainability. But even companies in sectors less obviously in danger must consider the potential threat to their business models. Shortages, price increases, tighter legislation and disillusioned customers can threaten business models that have traditionally performed well.
Water scarcity can also provide new business opportunities. It is therefore in any company’s long-term interests to ensure that it is prepared for this challenge.
Many companies have started to respond seriously to this issue. In our report, we look at how companies, including the beverage companies Coca-Cola and Vittel, mining giant Rio Tinto, shoe and apparel maker Puma, and South African retailer Woolworths, are measuring and reducing their water consumption, within both their operations and supply chains (for more on Puma’s efforts, see "P&L pioneer").
Though strategic responses to water scarcity have only started to emerge in the last few years, leading companies share four common approaches:
Measuring water use and associated risk
Reducing water consumption
Understanding the true value of water
Engagement and disclosure
Several tools and frameworks have also been developed in the past few years to help companies measure, manage and report their water use. For example, Aqueduct Alliance, set up by the US-based World Resources Institute, has developed a database of tools that measure and map water-related risks. The database includes water stress maps donated by Coca-Cola in October 2011. This is just one of the five water tools highlighted in Thirsty Planet.
The finance professional’s role
Finance professionals are best placed to help their companies weigh the implications and opportunities presented by water scarcity. Management accountants have the skills to help their companies create sustainable business models. They can provide the right information to understand the true cost of business and ensure that today’s business decisions will continue to deliver value in the long term. And by applying financial rigour and “speaking the language” of business, they can support the integration of sustainability initiatives across the organisation.
Over the next few decades, businesses will face some hard decisions about water. Management accountants will play a key role in ensuring the sustainability of this vital resource.
QUESTIONS FINANCIAL PROFESSIONALS SHOULD ASK
As finance professionals become involved in water sustainability discussions within their organisations, there are several key questions that should be considered:
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