Water scarcity creates risks for businesses, demands management: Zurich

Water scarcity is leading to risks and exposures for businesses worldwide, necessitating that organizations put in place appropriate water management plans, argues a white paper issued Tuesday by Zurich Insurance.

Businesses around the world are feeling the strain of water scarcity and local solutions that focus on water stewardship and management are needed, notes Is Water the New Oil?, which outlines the causes of water scarcity, highlights the potential exposures to businesses, and addresses some key practices for water management as part of a long-term business strategy.

“Water shortage or water stress can be defined as an imbalance between the supply and demand of water over a period of time that results in a disruption of water supply to meet the demand. Water shortage impacts demand for potable water, water for agricultural irrigation and industrial processing,” the Zurich white paper explains. “The key drivers affecting the supply side of water shortage are regional intermittent drought and climatic drought,” the paper notes.

Among the risks faced by businesses are increased costs, supply chain and business interruptions, relocation and closure, political risk, tougher regulations and legal challenges, reports Zurich, a multi-line insurer that provides a wide range of general insurance and life insurance products and services. [click image below to enlarge]

“Many businesses rely on water as a strategic resource, and shortages may lead to significant adverse economic impact for them and for the economy,” the paper states. “This impact may range from increased costs to procure water from alternative sources or relocate operations to business interruption or slow-down. It may even threaten business survival,” it cautions.

“While agriculture is, by far, the largest water user, this exposure can affect all types of businesses, including food and beverage companies, chemical companies and manufacturers, to name a few,” says James Breitkreitz, risk engineering executive technical director for Zurich Services Corporation.

Other industries that could be affected include petrochemical, refineries, pulp and paper, electronics, mining and even nuclear power plants, which “rely on continuous uninterrupted and reliable water supply for processing and cooling.”

“With prolonged drought and dwindling water resources, many regions are faced with higher costs, changing priorities and restricted allocations in the form of water usage caps and water rationing. This situation often leads to conflicts between growing communities and large users of water, such as agricultural and industrial users,” the white paper notes.

Zurich reports that many businesses have recognized the potential exposures and are starting to disclose the financial impact of water risks to investors.

“Water shortage is not a new emerging threat, but it is starting to get serious attention,” the paper states. “Apathetic and misguided efforts to cope with today’s unchecked growing demand for water and the lack of water stewardship have resulted in over-exploitation and accelerated depletion of reserve supplies of water,” it adds.

“Since water shortage is not a named peril for time element insurance coverage, with the exception of crop insurance, this exposure is largely uninsured,” the paper points out. “Risk managers and business leaders, who have long relied on a continued supply of water, need to revise their risk management and long-term planning processes to include the reality of water shortage,” it adds.

“This global problem can no longer be overlooked and will require a commitment to water stewardship and wide stakeholder participation,” Breitkreitz emphasizes.

Some key practices for water management that businesses can employ to reduce their exposure include the following:

• build alliances with all regional stakeholders to co-ordinate, collaborate and share good water governance practices and sustainable water balance plans for the region;
• identify critical water-intensive processes and assess on-site water utilization (consider a water accounting program); and
• implement a water management and conservation plan that includes setting benchmark goals, inspecting systems for leaks, installing water-efficient devices and other actions.

Such a plan will include setting and measuring baseline levels for water conservation benchmark goals, raising awareness and involving employees, identifying and prioritizing opportunities for water conservation, regularly inspecting systems for leaks and promptly repair any that are found, installing water-efficient devices, such as auto shut-off valves and low-flow devices, measuring and monitoring the business’ progress using appropriate tools, and communicating and publicizing successes and results.

“For businesses, the risks associated with water shortage can be direct or indirect and will vary by type of business,” the white paper notes. “All businesses, however, will be adversely impacted to some extent by physical, regulatory, reputational or litigation risks, emphasizing the importance of undertaking a robust assessment of current and anticipated water risks,” it notes.

“Clearly, businesses should assess their dependence on water supply for production and process needs to understand business interruption risk,” the paper states.

“Growing water scarcity is now a global challenge that needs local solutions focusing on water stewardship and water management. It also requires wide stakeholder participation and effective ways to conserve water in industry,” notes the white paper. “Continuing to drill deeper wells and drain the water reservoirs and ground water supplies to cope with today’s growing needs is not a prudent short-term strategy without a long-term commitment to a strong water management and conservation strategy.”