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August 24, 2004

Got Water? Report Recommends Solutions for Businesses To Address Water Scarcity
    by William Baue

A new Pacific Institute report outlines the impacts on business of water scarcity, and offers ten steps companies can take to help solve these problems.

SocialFunds.com -- In late 2001, Anheuser-Busch (ticker: BUD) operations suffered from a temporary drought in the Pacific Northwest. Too little water to brew its beer? Not exactly. The brewer felt the drought's pinch in its supplies of barley, a key ingredient affected by reduced irrigation in Idaho, and aluminum, the can material whose production relies on cheap hydroelectric energy that was in short supply at the time. This example shows how water scarcity can affect not only obvious core business operations, but also less obvious areas such as the supply chain.

While the issue of water scarcity is often illustrated by its effect on rural villagers in Asia and Africa, exemplifying its effect on beer drinkers may prove more convincing to some, as it shifts the discussion from a guilt narrative to a more clear-cut business decision. Despite the fact that plenty of both types of examples exist, surprisingly few companies are even considering water scarcity as a business issue, according to a new report from the Pacific Institute, an independent nonpartisan environmental think tank.

"Ultimately, organizations that fail to think strategically about water will find themselves embroiled in highly public and emotionally charged disputes over a resource considered by many to be a basic human right," write co-authors Jason Morrison and Peter Gleick of the Pacific Institute in the report.

Both PepsiCo (PEP) and Coca-Cola (KO) know such disputes intimately, as they have faced intense opposition from nongovernmental organizations (NGOs) as well as courts and communities in India over their use of water resources there. In a court case that is still pending, the local government in Kerala ordered operations of both companies' plants suspended until their impact on local freshwater supplies, especially during droughts, is determined.

"The report makes clear that to be responsible stewards of shareholder resources, companies must become more responsible stewards of water resources," said Steve Lippman, Senior Research Analyst at Trillium Asset Management. Trillium cosponsored the report with its fellow socially responsible investment (SRI) firm the Calvert Group.

The report, entitled Freshwater Resources: Managing the Risks Facing the Private Sector, identifies the main water-related issues facing business. For example, the report lists climate change, privatization, and decreasing availability and declining quality coupled with increasing demand among the trends and risks associated with water.

"The good news for business is that there are a range of steps they can take to protect themselves while helping protect these key resources for the future," said Arvin Ganesan, Associate Social Research Analyst at Calvert.

The report offers ten steps companies can take to help solve water-related issues. These steps include measuring current water use; establishing water policies with specific goals and performance targets; improving water efficiency and conservation efforts; and engaging suppliers, community groups, and outside partners in an open dialogue.

The report provides examples illustrating these strategies in action. In response to the 2001 drought, Anheuser-Busch formed a Water Council in 2002 to develop a company-wide strategic plan for water use. According to its 2003 Environmental, Health and Safety Report, the company has reduced water use since 1999 by about ten percent, thus lowering its exposure to water-related risks.

Coca-Cola, which reports that it uses about three liters of water for each liter of drink produced, has also initiated programs to monitor water-use efficiency in its plants, improve treatment of wastewater, engage with stakeholders on water-related issues. According to its 2003 Environmental Report, the company saved over 10 billion liters of water by improving it water-use efficiency by seven percent between 2002 and 2003.

Another example of solution-based thinking comes from Procter & Gamble (PG), which estimates that 85 percent of its product sales are associated with household water use.

"As you improve current products, or develop new-to-the-world products and services, think about how you could apply our technologies to use less water, use water differently, or use no water at all," the company has told its product development team.

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