The risk that water scarcity poses to businesses is exacerbated by the challenge of pricing water, according to a recent commentary in Environmental Leader.
"In most markets, the price of water does not obey the most basic law of supply and demand, with water bills in some drought-prone areas of the US actually lower than in regions with higher rainfall. In some developing countries, abstracting water is almost a free for all," Trucost Research Analyst Anna Georgieva wrote in the piece.
This dynamic creates problems for industry.
"In the absence of a clear price signal, allocation of water becomes arbitrary as decision makers are unable to ensure that scarce water resources go to the most valuable uses," Georgieva wrote.
Georgieva's company, which focuses on environmental data, has introduced a tool to overcome some of the challenges of pricing water.
"To help more companies generate a price for water that reflects its true cost and which can be easily incorporated into business decision-making, we have worked with Ecolab to develop a free-to-use web-based tool called the Water Risk Monetizer," she wrote.
Most existing tools focus on measuring water risk in physical terms. This tool, however, approaches risk in a different way.
The tool measures "a water risk premium that reflects the monetary value a business should place on water based on current and future water scarcity risks. It enables a company to assess the potential cost implications of water scarcity for each of its facilities around the world. The information can be used to inform capital investment decisions and to bring insight into future operating costs and how these may affect business growth," she wrote.
A growing number of businesses have reported water risk exposure in recent years.
Environmental think tank CDP recently released a survey that showed "two thirds of the world’s largest companies — including Merck, Unilever and H&M — are reporting exposure to water risks, some of which have potential to limit growth, according to CDP’s latest annual global water report," Environmental Leader reported in November.
CDP described the importance of these findings on its blog.
Shareholders are "increasingly demanding answers on this issue. The number of investors seeking corporate accountability on water and related information through CDP has jumped by over 300% since 2010. [The CDP report] analyzes the water management strategies of 174 of the world’s largest listed companies in sectors with high water vulnerabilities and impacts," the post said.