By Will Sarni, Founder and CEO
December 10, 2019
Over the past couple of decades, companies have moved from compliance focused water management strategies to water stewardship strategies (Fueling Growth). Water stewardship strategies are risk management focused across a company’s supply chain and typically within the watersheds in which they operate. Components of these strategies usually incorporate collective action programs and engagement with non-governmental organizations (NGOs).
While a risk management focused water stewardship strategy delivers business value, it is incomplete. In contrast, a corporate water strategy has the potential to build upon stewardship strategies and create brand value (Purpose Driven Brands are the Future) and scale innovation in technology, financing and partnerships. The basis for the point of view that corporations should invest in water strategies, not just stewardship programs, was a while in the making and numerous conversations with colleagues. The journey was discussed in my writings with several colleagues – Fueling Growth, Water Stewardship and Business Value (Sarni and Grant)- and most recently From Corporate Water Risk to Value Creation (Sarni and Share).
Water Stewardship versus Water Strategy
A corporate water strategy can be an opportunity to contribute to business growth while simultaneously mitigating business risks and improving the well-being of communities and the environment. Such an approach would better align with the reality that corporations spend more money and allocate greater resources on growth strategies versus risk mitigation strategies. For example, marketing and sales, according to ‘CMO Survey: Highlights and Insights 2018’, accounts for 7.3 percent of company revenue, and in 2016/17, MindBody, Salesforce, Bottomline Technologies, Tableau, Oracle and Johnson & Johnson all had marketing and sales budgets that were greater than 20 percent of revenue, some spending close to 50 percent.
Likewise, technology can account for 3.28 percent of company revenue (‘Technology Budgets: From Value Preservation to Value Creation’, 2017). In contrast, the 2018 RIMS Benchmark Survey found the total cost of risk is $9.75 per $1,000 of revenue (so representing 0.975 percent), defining the total cost of risk as the cost of insurance plus the costs of the losses retained and the administrative costs of the risk management department.
A corporate water strategy identifies and invests in activities that create brand value (e.g., the brands with purpose trend), drive innovation in technology (e.g., digital transformation), strengthen water governance, advance funding and financing mechanisms (e.g., blended finance), and establish higher impact partnerships and business models. This approach generates greater societal value and positions a company as part of the solution to the 21st century water challenges of today.
Business Value through a Water Strategy
There are a few practitioners beginning to add business value creation into the discussion of water stewardship. For example, WWF published Water Stewardship Revisited. The article is built upon WWF’s framework of water stewardship as a risk mitigation strategy to highlight the business value of water stewardship. WWF continues to build on this 2018 paper with its recently released reports on Linking Water Risk and Financial Value and its Water Risk Filter (WRF) tool with increased functionality that allows companies to link portfolio water risk assessments to financial impacts. The WaVE WRF module will help companies understand how water risk can affect financial value (a joint project of WWF and Water Foundry and powered by CDP).
In Water Stewardship and Business Value, and From Corporate Water Risk to Value Creation (Sarni and Share) we believe that only by framing water investments as contributing to business growth will the private sector be more actively engaged in solving water challenges. This does not imply that all companies will become water solution providers (e.g., technology and services). Instead, we propose that companies, regardless of the industry sector, have skills, talent and capital to leverage in the water sector and ultimately help solve our water challenges. Moreover, there are opportunities for companies to partner with NGOs (e.g., Absolut Elyx and Water for People, AB InBev and water.org) and engage their employees and even consumers in programmes to support education and awareness of water issues (Project WET).
So, can a company have a water strategy that includes water stewardship without it being the primary framework and end point? Consider an information communication technology company (ICT) that is focused on artificial intelligence or internet of things (IoT) solutions that use technology for water efficiency, improved asset management and water reuse. These are not necessarily in the realm of water stewardship but have the potential to transform how water is managed. The work of the World Economic Forum on the Fourth Industrial Revolution maps out the opportunities for the ICT sector in water. Imagine the impact if companies worked with governments to bring these technologies forward to help solve some of the pressing water challenges in large urban areas.
An excellent example of a company with a water strategy which incorporates innovation and builds upon their stewardship strategy is ABInBev. According to ABInBev, its ZX Ventures global growth and innovation team launched in 2015 has a goal of developing new products and businesses that address emerging consumer needs. In October 2018, ABInBev also launched its 100+ Accelerator which issued 10 challenges to scientists, technologists, and promising entrepreneurs around the world to help drive progress to the United Nations’ Sustainable Development Goals (SDGs) and ABInBev’s 2025 Sustainability Goals.
ABInBev is a leader in water stewardship but has now created additional business (and societal) value by focusing on innovation and expanding business ecosystems to solve sustainability (including water) challenges.
Water Technology Opportunities
There are significant opportunities for innovative water technologies in both the private and public sectors. For example, the water utility sector is faced with aging and underfunded infrastructure and an aging workforce. These factors coupled with the impacts of climate change such as extreme weather events and variability in water supplies (e.g., snowpack versus rainfall, saltwater intrusion of aquifers, etc.) threaten the ability of utilities to reliably deliver safe drinking water. The utility sector is not alone in facing water related risks. The industrial sector such as consumer packaged goods, food and beverage, apparel and manufacturing are experiencing business continuity impacts from water scarcity and poor water quality. The food and beverage sectors alone are facing risks to their agricultural supply chain and manufacturing operations.
There are investment opportunities in technologies that address both the utility and industrial sectors. Notably, digital technologies are transforming how water is managed and its infrastructure. Satellite data acquisition and analytics are being used for utility leak detection, flood prediction, water quality monitoring and crop productivity. Drones are being used for monitoring infrastructure assets and crops. Data analytics and AI are being used to monitor asset performance (e.g., treatment systems and pumping systems) and Virtual and Augmented Reality (AR/VR) tools are being deployed to support workforce demands in asset maintenance and repair. In addition to the digital transformation of water (WEF 4IR for Water), innovations in material science have led to air moisture capture technologies, vastly improved treatment technologies such as desalination providing alternatives to traditional sources of water (surface water and ground water).
For example, new sources of water supply and access to data and actionable information are moving us toward democratization and distributed water systems. We are in the process of providing an alternative to centralized water infrastructure and regulatory agencies in not only the delivery of water but also in providing data and actionable information.
Technologies for delivering water through on- and off-grid air moisture-capture systems; or for providing digital solutions (data and actionable information) on water quantity and quality to consumers through digital services are within reach or currently commercially available. Distributed water treatment systems have emerged as viable alternatives to centralized options. Combine on- and off-grid air moisture-capture technologies with these water treatment systems, and we now have a broader menu of technology options for communities and cities. These distributed systems also factor into building 21st-century resilient cities.
The private sector has opportunities to be part of the solution to water scarcity and poor quality by leveraging its global reach, skills, workforce and speed in implementing programs. We can tap into this power by working with companies to build corporate water strategies that create business value and solve “wicked water problems.”
Will Sarni is an internationally recognized thought leader on water strategy and innovation. He has been a sustainability and water strategy advisor to multinationals, water technology companies and NGOs for his entire career. Will has written numerous books and articles and presents on subjects such as the value of water, innovations in digital water technology, the circular economy, and the energy-water-food nexus.