Making A Business Case For The Use Of Water

By Julie King

A Q&A with Stuart Orr, head of water stewardship for the World Wide Fund For Nature (also known as World Wildlife Fund)

Very often the label “environmentalist” is associated with a staunchly anti-business agenda.  This ‘perception hurdle’ is faced by even one of the world’s preeminent conservation organizations, World Wide Fund for Nature (‘WWF’).  But this negative perspective is beginning to shift from nemesis to collaborative partner as more and more companies are benefiting from the significant efforts of — and honest interactions with — WWF, particularly through its Water Stewardship activities and resources.

How does WWF work with and benefit the worldwide business community?

“WWF’s intent is to be constructive partners.  We have companies we work with saying ‘you guys really understand what we need to do but you are also not afraid to kick us.’  Companies seem to want this directness and willingness to tell them like it is.  We are not a bunch of environmental cranks.  WWF understands that we need to build up economies and to help businesses and governments to do this.  We have to strike this pose.  The media loves to paint environmentalists as anti-business.  But we want to talk about collaboration.  We know that being successful means we assist companies comprehensively, not only identifying risks but in addressing the broader issues required to get to the real point of where things stand for the company in relation to water and how this looks in terms of shareholder value.”

WWF has worked extensively as an organization and with corporate partners to develop tools for companies to use in identifying, addressing, and mitigating water risks.  A lot of companies see water as a cost.  How does WWF help companies in understanding the bigger issues surrounding water?

“Water Stewardship is the greater context in which ‘water risks’ fall.  Water Stewardship requires companies to take a different tact.  Companies have to become advocates for what is in the public interest, not strictly from the interest of their company.  Water is a ‘shared risk’ — many people have to make use of a river basin, for example.  Companies share the risks and stewardship responsibilities of scarce water resources.  That may mean they are ‘losers’ in business or that they lose control and their risks may go up and they may feel increased ‘pain’ as a company in sharing that water risk.  But the biggest risk really is when you’re the only one, which can afford water.

“There has been a tremendous amount of work done in the past eight or nine years to support companies in making this shift.  But there are all kinds of schemes out there now and it is important that we not lose sight of what we’re really trying to do in managing water resources.  We’ve reached this one pinnacle in creating awareness of water risks for companies.  But I see a huge savannah out in front of us, with more looming mountains in the distance.  There will likely be a lot of ‘clutter’ and confusion in the discussions for another five years or so to come, and before more pain brings companies to understanding the implications and reality of water — and start climbing those mountains.”

In the 2015 Report that WWF published with the IFC, No Water - No Business for the Swedish Private Sector on the value of water — which applies to all businesses, not only Swedish — you talk about the ‘skewed market-based value of water’ that has resulted in losses to shareholder value.  What do you mean by this? 

“There is a huge leap between companies doing a risk assessment and responding to those risks in a good way.  This is still not being done well.  First of all, too many companies are not even doing a risk assessment.  It is so easy and there is no excuse any longer for companies not doing this.

“The question companies have been asking, even after doing a risk assessment, is ‘How do I build a strategy to address risk mitigation?’  But this is an internal discussion only.  It is a little bit like trying to game the system.  They are really shortcutting the actual issue of water risk.  That is a much bigger risk and requires much more than discussing the issue ‘inside the fence line’. 

“There is a real ‘disconnect’ here between the ‘collective movement’/CSR mentality — wanting to ‘do well’, ‘be green’, etc. But the issue of water risk has to be considered in the context of water stewardship and that is a much different issue than merely being able to ‘check a box’ and say, ‘OK, now we’re doing ‘water risk’.”

The WWF Report The Value of Water addresses the problem of ‘undervaluing water and how it reduces shareholder value and harms ecosystems’.   So what are the key points that a company — in any industry — needs to consider in order to fully address how water impacts its business — both in terms of corporate value and operations?  

“Different businesses have different structures and decision-making processes. The valuation work is very important going forward.  It is pushing levers and incentivizing companies to be more proactive and realistic with water.  Some companies only see water, that the cost is very low.  Part of valuation is to look at water differently, as important to a company for its fundamental corporate value.

“There are difference incentives for different sectors.  It is interesting to listen to mining guys. They can put down in concrete terms their losses from how they use water.  They are making a business case for their use of water in a different way.  This whole valuation process is really about making a business case for companies and governments to act so that water is preserved.  An association water body can determine the value of a river basin to be ‘X’.  There is a need for governments to be responsible in setting policies, which support that water value.

“Companies have to stop doing business as usual and start with doing four things:

1. Do a basic water risk assessment — it is easy.  Just go to the Water Risk Filter.  It is available in four languages: English, Spanish, Chinese, and Portuguese.  And it’s free to use.
2. Take a basin approach to water, as opposed to strictly looking at the cost and price of water.  This act alone would make a huge difference.  But companies are still making decisions ‘inside the fence line’ and looking at water only in terms of business efficiencies.
3. Create effective strategies — from a basin approach — and implement them.  Those strategies have to address how the company truly mitigates its direct and indirect water risks.
4. Do a valuation — of their company, their strategies, and with full-disclosure of those water risks, their impact on the company, and how their strategies mitigate those risks.  Importantly, the valuation of all of these elements shows actual impact on shareholder value.

“The Water Risk Filter has tabs for Water Risk Assessment, Mitigation, and Mapping, which shows 90 risk areas.  It will include a Valuation tab by the middle of next year.  This will make it easy for companies for do a valuation.  The Filter is used by companies and consultants working with their clients to put effective strategies in place, once all of their water risks have been identified.

“We’ve had discussions with mining guys.  And other industries like oil and gas have increasingly active associations.  But the mining guys are beginning to understand that when even a smaller mining operation fails, the entire mining sector is blamed, not just the one smaller company who made the mistake.  The entire sector is blamed, so high-risk industries like mining and oil and gas — the industry associations have an important role to play in bringing more smaller- and medium-sized companies, independents — into the fold. 

“The associations are doing good work.  There just needs to be more recognition of the collective brand of the industry.  Whenever one small company screws up, it reflects on the entire industry.  The sector is only as good as the lowest common denominator.  The IFC work we’ve done came out of mining.  There is a tendency from companies in thinking they can be dismissive of water and that they can buy their way out of serious problems. 

“But mining companies are losing a lot of money and they are thinking of engaging in other ways than being combative.  There is an increasing important role that associations can play here, especially in bringing themselves alongside smaller companies, to provide training to them in dealing with water risks and the broader water stewardship issues that can — and will — impact their operations. It is in the associations’ — and the companies’ — best interest to work together on mitigating these risks.  They can no longer take just a dollars-and-cents perspective on water.  Companies must get real about water.  Having the right water risk mitigation strategies is not just an environmental nicety to have.  But it brings value to the company — and to shareholders.”