The Business Value of Water: Precious Resource or Cheap and Limitless Commodity?
In most developed nations, clean, safe drinking water is so cheap and plentiful that we use it to wash our cars. And our idea of a ‘drought’ is when we are only allowed to water the lawn every other day. But, from a global business perspective, is water really something we can afford to take for granted?
Here’s the debate:
|Water is plentiful and virtually free.
Any time we turn on a faucet, clean drinkable water comes pouring out. And most businesses in the U.S. today don’t appear to be suffering from an immediate water shortage. Moreover, the cost of water is so low right now that it’s just noise on the P&L statement. So what’s the problem?
|Water is the ultimate renewable resource, but it’s not unlimited.
The Earth doesn’t create new water – it just continuously recycles the water that already exists. If our need for clean water exceeds the planet’s natural capacity to regenerate it – or we pollute our water sources beyond repair – businesses could face severe shortages, increasing prices or loss of access to water.
|Water is essential for life.
The human body is 90 percent water. We can survive for three weeks without food, but only three days without water. In some parts of the world, people are literally dying of thirst.
|Water is essential for business.
Without water, companies can’t run their factories and supply chains. And for certain types of companies water is a critical component and part of the manufacturing process.
|Competition for water is rising.
As population increases and as developing nations increase their consumption, demand for water is on the rise. When rising demand meets limited supply, the result is fierce competition.
|Business use can be a low priority.
When allocating water, the top two priorities are supplying people with water to drink and providing farmers with water to grow food. Business use is a distant third. In many countries, these allocation priorities are enforced by law.
|Water is just a compliance issue.
Although water might be a problem in other parts of the world, many companies in developed economies only worry about water to the extent they must comply with government regulations.
|Water is a strategic business issue.
Global companies are relying on developing and emerging markets for growth, which makes water a strategic business issue and major risk factor – even if water is cheap and plentiful at home. Companies that use too much water can have their licenses revoked, their operations disrupted and their brands damaged.
William Sarni, Director and Practice Leader, Enterprise Water Strategy, Deloitte Consulting LLP
Many companies today take water for granted – especially in developed countries. However, we believe water is quickly becoming a strategic business issue and that companies should act now to mitigate the potential risks.
Competition for water is rising fast, thanks to global population growth and the emergence of developing economies that aspire to our high-consumption lifestyle. Meanwhile, the supply of clean, safe water is shrinking. Underground sources that have been accumulating for thousands of years are being sucked dry and surface sources are being steadily destroyed by urban development and pollution.
When water is cheap and abundant, most businesses don’t give it a second thought. But when demand exceeds supply, the true value of water quickly becomes apparent -- especially since business use takes a back seat to more fundamental uses such as drinking and farming.
You might be offended if a restaurant tried to charge you for a glass of tap water. But what if that were the only water available in the middle of a desert? Now how much would that glass of water be worth?
Another way to understand the value of water is to think about it in terms of an energy such as oil, which is something everyone realizes is important and worth conserving. On one level, water and energy can be viewed as equivalent and interchangeable. It takes water to produce energy – whether it’s to spin the turbines in a dam, generate steam to release oil from shale or cool a nuclear power plant. Conversely, it takes energy to produce clean water, whether it’s to pump water out of the ground, power filtration equipment, or fuel a delivery truck to deliver bottled water to consumers.
On another level, our supply of water is even more valuable and volatile than our supply of oil. Unlike oil, which is a global resource, water is a local resource whose availability is dictated by local factors such as weather and competition with other users in the region. In an oil shortage, the price of oil goes up but you generally can still get as much as you need if you are willing to pay the price. On the other hand, in a water shortage the water your business needs may not be available at any price because it is being allocated to other more critical uses in the area. In India, for example, businesses have had their operating licenses revoked in order to provide more drinking water to the public. And in Africa, some beverage companies routinely shut down for months at a time due to lack of water.
Reputational damage is also a major risk, especially in markets where water is precious and scarce. Driving a full beer truck past people whose children are dehydrated is no way to create a positive brand image.
Given these risks, it is essential for companies to develop a holistic strategy and plan for reducing water usage, protecting and preserving the water supply and developing contingency plans to ensure business continuity in the event of a severe shortage. In this day and age, smart companies wouldn’t dream of operating without a risk management strategy for critical resources such as information systems and energy. It’s time to think of water in the same way.
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