Tuesday, July 28, 2020

Water: A Human and Business Priority Thomas Hundertmark, Kun Lueck, Brent Packer

With the subtitle of "Water stress increases risk for communities and business", the McKinsey consultants proposed that "through proactive individual and collective action, businesses can combat the water crisis". Citing risks associated with climate, demographics, and the economy, the authors suggested three "spheres of influences" that businesses' major stakeholders can control to lessen any impending crisis. Business can leverage operations, supply chain, and the ecology of the basins they rely on.

The authors recounted basic water data: 97 percent of the earth's water consists of salt water,  three percent fresh, and one percent of fresh water applies to water not trapped in glaciers available for human use. Globally, humans extract 4.3 trillion cubic meters of fresh water annually, seventy percent of which goes to agriculture. In the United States, the percentage of water use by industry in operations equals  that of agriculture, 37 percent. The use of agriculture, such as maize production for ethanol, complicates deriving an exact percentage.

To support these businesses, the authors focused on the Earth's 410 fresh water basins from the Huang He, the Nile, to the Colorado River. According to the authors, 90 of the 410 water basins come under the category of high stress, meaning "the ratio of total annual withdrawals exceeds 40 percent."  Although these stressed basins constitute 13 percent of the total area of named water basins, they experience 51 percent of the total withdrawals. To explain the reasons for the rate of extraction, the authors compared population growth in the 20th century, fourfold, with water use, sixfold. Describing water shortage impacts in South Africa, UN reports of water shortages, and the World Bank projections. the authors predict GDP declines

Businesses face not only these production risks--operations, supply chain, and basin eater supply--but also the risks of "physical, regulatory, reputational and stakeholder risks". Regulatory risks involve governments curtailing business's water use. Regarding reputation, this risk stems from the reaction of constituents who insist that business protect the environment. Finally, stakeholders, such as the Task Force on Climate, demand financial disclosure to make visible company efforts on climate issues.

Within the production process--operations, supply chain, and basin supply preservation--companies can take the following actions:  operations can include water usage as one of its Key Performance Indicators (KPIs), and identify its use of water efficiency technologies. In the supply chain, suppliers document their water efficiency through water technology audits and water standards. Finally, as it relates to basin supply, businesses  should actively advocate for the fair pricing of water and setting water goals such as those stipulated in the UN  Global Compact's CEO Water Mandate.


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