Water security must get on the board’s agenda – with accountants playing a critical role as ‘awareness experts’, say Roger Burritt and Katherine Christ
Access to water is a growing concern globally, bringing with it significant economic and political challenges. According to the World Economic Forum, while population grew fourfold in the 20th century, demand for water grew by a factor of nine. The forum’s Global Risks 2013 report ranked water supply as a top five risk, with freshwater demand expected to exceed current supply by over 40% by 2030. According to the forum’s Water Initiative, in Asia agriculture currently uses 70% of annual global freshwater withdrawals and up to 90% in some parts of the region; furthermore, governments in the region will require on average 65% more freshwater by 2030 to meet national growth aspirations.
Businesses are starting to become aware of the implications for supply chains, production and future investment decisions. A survey of major US corporations by the Pacific Institute and VOX Global found that for nearly 60% of responding companies, water could negatively affect business growth and profitability within five years, with over 80% saying that it will affect where they locate in the future.
Meanwhile, ACCA has produced several reports that raise questions for the CFO. First, is water the next carbon? Second, is disclosure enough? And third, does water merit separate attention from the general movement towards natural capital accounting? The answer to these questions depends on a range of considerations including the business’s source of water, type of business, size, production processes, skills and, above all, leadership from CFOs.
Multinational corporations in different sectors have much to gain, especially in agri-business where 70% of water is used for irrigation. But manufacturers will also reap the benefits of better water management. Coca-Cola and Campbell Soup Company are well-known examples; the Pacific Institute and VOX Global survey adds corporates such as AT&T, MillerCoors, Cummins, The Hershey Company and Union Pacific Railroad.
However, it is only relatively recently that risk and opportunities associated with water supply have been recognised as financially important. With a broad perspective, the United Nations Global Compact CEO Water Mandate looks to business to help achieve the UN’s goals on water, ensuring that wastewater is properly treated, thereby helping communities, water catchments, corporate reputations and CFOs reach their goals.
Likewise, under the Carbon Disclosure Project – an international organisation that enables companies to measure environmental information – corporate water stewardship is seen as good business which will:
Accountants are ‘awareness experts’ par excellence. In the case of water they can support businesses purchasing from different regions, operating in different countries or selling products to consumers anywhere in the world. However, as accounting professional bodies worldwide work to incorporate sustainability measures, evidence suggests that there has been difficulty integrating aspects of natural capital, such as water, into accounting practice for a number of reasons:
The World Business Council for Sustainable Development’s report, Water for business: initiatives guiding sustainable water management in the private sector, contains an up-to-date and comprehensive list of tools. Current options include generic initiatives such as water footprint assessments and lifecycle assessments, as well as guidelines developed for specific industries – for example, the Beverage Industry Environmental Roundtable Water Footprint Working Group.
Water accounting needs to be tailored to the specific activities undertaken within individual organisations. Of vital importance is how information is used, and for what purposes; of itself, a water footprint analysis achieves nothing. Organisations need to move beyond a focus on legitimacy and reputation building and embrace an internal management approach if they are going to add value to their businesses by realising the full range of economic and environmental benefits made possible via improved water use, the reduction of risk in times of water shortage or surplus, and grasping opportunities.
Boards are becoming concerned about water shortages in droughts, water surpluses in floods, quality when supplies are polluted, and building resilience for sources and uses in the face of extreme weather events which increase insecurity. The accounting profession can get back to basics, working with other professionals, focusing on effective long-run decision-making.
This article first appeared in ACCA's Accountancy Futures journal, issue 9, September 2014.