No water, no energy. No energy, no water.

We have been talking about the interrelationship, or nexus, between water and energy for some time now, so when I first learned about the 2012 Deloitte Energy Conference I saw an opportunity to expand the dialogue—to help advance thinking that could move us toward solutions.  I teamed up with Joe Stanislaw, one of Deloitte Services LP’s leading energy consultants, to present a panel at the conference, “No Water, No Energy.  No Energy, No Water.” 

The conference was held on Monday and Tuesday of this week in Washington, D.C., bringing together energy executives, investors, regulators, and Deloitte professionals from around the globe to network and explore insights and ideas on developments and challenges facing our global and domestic energy markets.   We viewed the panel as a way to highlight a few, targeted actions that businesses and industry influencers can take right now to build awareness of water scarcity and how that problem relates to energy production, and to spark creativity about what we can do to conserve, become more efficient, and innovate new solutions.

 The title of our panel presentation actually sums up the issue quite well. You can’t generate energy without water and you can’t deliver water without energy.  In view of increasing scarcity of water and competition for water, it is important to do better.

The facts are these: the era of cheap water is over; water and energy are inextricably linked; water is expected to be the next “hot” commodity and the corporate water footprint is anticipated to be the next tipping point for almost all energy companies.  In short, water stewardship is an idea whose time has come for virtually all industries, but especially for the energy sector.  Several dozen participants, including executives from oil and gas and utilities, joined us for the discussion.  They were a group that understands that energy is a primary engine of growth and that we can no longer sit still and practice “business as usual.”  Among other considerations, the sheer competition for energy and fresh water raise serious concerns about economic development, national security, and the general well being of the public.  We talked about public and private sector pricing of water, the impact on infrastructure projects, the effect of water scarcity on shale gas and oil sands production.  These are complex and intertwined issues, involving emerging nation challenges, environmental regulations, the future of food shortages and the agricultural industry, among many other considerations.  But the point is we have to start somewhere in moving toward viable solutions. 

Many of the participants may be/are aware that water is NOT actually a free good and that we should come together to understand how to share this scarce and precious resource.  Joe and I talked about the need for virtually every public and private sector organization to develop a water stewardship strategy.  We suggested a few specific actions for “managing the nexus” effectively:

Water generally

• Track water use against energy use
• Develop an understanding of your water footprint and water risk within the watershed
• Engage stakeholders within the watershed to develop a collective water and energy conservation and management plan

Energy and power specific

• Adopt “watershed-scale thinking,” which is viewing energy development and power generation within the context of the local watershed
• Consider renewables for watersheds that are experiencing water stress or scarcity
• Engage stakeholders within the watershed to develop a collective water and energy conservation and management plan

The bottom line is that we need some breakthrough thinking—and we need some deep innovations—to help facilitate improvements in efficiency, approaches to new exploration and production, and fresh water solutions such as desalinization.  In my experience, when we ask people to do more with less, we tend to get creative.  Today’s water and energy challenges represent a huge business opportunity, and we look forward to great innovations coming out of the opportunity/innovation nexus.


Will Sarni
Director
Deloitte Consulting LLP

 

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

Investor interest in water risk on the rise

“If you don’t have water, you don’t have business…”¹

One of the world’s most-taken-for-granted resources is also one of the world’s most foundational requirements for business growth.  In fact, it can be said that water is a strategic resource for most global businesses, some more obviously dependent on access to plentiful supplies of water (food and beverage industries) than others (mineral extraction, clothing and semiconductor manufacturing, pharmaceuticals). 

As growing populations, increased economic activity, drought, and pollution take their toll on widespread availability of water, increasing numbers of senior executives are coming to view water as a substantial risk to their business.  Clearly, water scarcity and increased competition for water, once issues of emerging economies now are issues of riveting interest to company stakeholders worldwide. 

Executives see impending risks—and opportunities

In Deloitte’s work with the Carbon Disclosure Project² to survey and report on executive awareness of global water issues, we have seen an upward trend over the past couple of years in the perceived level of risk exposure associated with water scarcity in both direct operations and supply chain operations.  In our 2011 survey, we saw 59% reporting at least one such risk, and more than 65% of these same respondents report having a potential for this type negative impact now or within five years.  

At the same time, 63% of respondents consider water scarcity as a potential driver of innovation in their companies.  They foresee opportunities in water efficiency, revenue from new water products or services, and improved brand value through effective handling of water issues. 

The bottom line is that water can present a significant near-term risk and significant near-term opportunity, yet awareness of risk to operations (especially in supply chains) is still fairly limited, and water management lags climate change as a sustainability issue on boardroom agendas. 

Liquid asset—or liquid liability?

For water, this two-sided coin of risk/opportunity translates the essential resource into either a liquid liability or a liquid asset.  Our focus centers on specific stakeholders who should understand a company’s water risks and opportunities, in particular investors who have a direct interest in how well a company manages its water responsibility, that is, mitigating risks, seizing opportunities, and communicating its positions and progress.  Increasingly, for example, we see investors looking for water-related financial disclosure (e.g., reports of SEC inquiries, lawsuit risks, minimization of environmental and usage impacts) and federal and state disclosures (e.g., exposure related to fracking, chemical waste, disposal incidents, financial impact of fines and penalties). 

We see the evolution of a new paradigm for water use and management that includes initiatives such as improved water data acquisition and analytics, precision agriculture, improved water efficiency, addressing water losses, developing energy-efficient water treatment technologies, and a move to extract energy and nutrients from waste water.  Our approach to “getting there” includes:

• Identifying regulatory, legal, and shareholder interests
• Assessing disclosures and comparisons to industry benchmarks
• Evaluating strategic, operational, and financial implications
• Monitoring controls and measuring compliance
• Reporting disclosures across financial and regulatory requirements

Is your company an effective water steward?  How well is it addressing investor concerns?  Have you thought about collaborating with another involved entity to improve your water-related competitiveness and reputation—and make a substantive contribution to global water stewardship?  Reliable water resources are a foundational element to revenue and market growth—perhaps even survival.  Now is the time to consider acting.


Kathryn Pavlovsky
Principal
Deloitte Financial Advisory Services LLP

Will Sarni
Director
Deloitte Consulting LLP

¹Element Investment Managers, 2010
²CDP Water Disclosure 2011 Global Report, www.cdproject.net

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

PEIs ponder the implications of sustainability on performance and reputation

Several leading private equity investment (PEI) firms have embraced the importance of assessing sustainability and environmental risks and opportunities in making investment decisions.  It was only four years ago that a major private equity organization partnered with the Environmental Defense Fund to establish the first “green portfolio” of companies, focused on environmental performance improvements.  In a relatively short amount of time, there is substantial interest in reviewing social, environmental, and governance factors that might produce tangible and sustainable improvements in business performance and profitability.

PEIs are a natural target

It makes sense that private equity firms were targeted for action in this area.  After all, the management of these firms is well positioned to incent their member and portfolio companies to prioritize sustainability and environmental issues as top value drivers and as a means to surface risk management concerns.  In addition, as PEI involvement has evolved and matured, sustainability/environmental factors have become a greater part of the acquisition decision process; these factors can be strategic drivers imbedded in the due diligence process to help identify a company’s potential for value improvement.

For some time, Deloitte has taken the view that investor interest in social and environmental responsibility matters will continue to grow.  But we also recognize that it can be more difficult to identify and assess risk in turbulent times, and these certainly are times that present special challenges on many levels—from global economic recovery and constantly changing regulatory requirements to rising energy and power costs, and natural resource supply constraints.  Taking all of this into consideration, we work with PEIs to apply a strategic, structured approach involving analysis frameworks that balance portfolio-wide and company-specific priorities across the entire PEI lifecycle.  This approach can help them chart direction and better allocate both resources and management time.  Ultimately, our goal is to help maximize performance and meet intensified stakeholder expectations—including those of investors, business partners, regulators, customers, employees, and consumers. 

Four steps to uncovering value

Toward this end, we developed an approach that helps determine which sustainability risks or opportunities would be most likely to affect a company’s value.  Our approach features four key steps: 1) Identify both existing risks and opportunities as well as use trend analyses to anticipate what will drive future demands; 2) Determine which strategies and initiatives to fund, defer, or reject; 3) Prioritize risks and opportunities based on multiple criteria that will help identify those with the greatest possibility of a positive outcome, and 4) Decide resource allocation that is aligned with capital planning and that offers the greatest long-term benefit and return.

Sustainability is a critical business issue and has significant potential to differentiate investment opportunities, unlock hidden value, and effectively manage risk.  PEIs can get out in front by proactively targeting portfolio companies that effectively address sustainability risk and opportunities and demonstrate that they are managing these matters on a prioritized basis.  It is one potential way of doing what is right while also uncovering value, meeting compliance needs, and elevating brand image.


Kathryn Pavlovsky
Principal
Deloitte Financial Advisory Services LLP

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.  

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

Energy Management Strategy: Energizing profits and insulating risks

Over the past year, Deloitte has seen a noticeable change in business and government thinking about energy and water resources.  Executives have more than an awareness of the opportunities to positively impact cost and risk to their organizations by addressing supply and consumption of these business critical inputs.  And, I think decision makers have recognized that aligning energy and resource management initiatives to strategic goals or government mission has an impact on; reputation, top and bottom line, employee motivation, and risk reduction.  When you think about it, very compelling outcomes can result from clarity on this issue.

One of the persistent challenges executives face is determining how much information is required to meaningfully impact energy management strategy and operations.  Is there a diminishing return on data collection and analysis and how does an organization determine what is the ‘right’ approach or appropriate management program to address energy and water management?   Another challenge and opportunity for executives is understanding how new supply technologies could be harnessed to deliver operational and strategic advantages.  We are having a lot of conversations with executives about new technology and innovation; from water treatment and re-use opportunities to distributed power and the potential benefit and application of abundant natural gas supply in the United States.

In the first two decades of the 20^th century we experienced a transformation of the global economy as the availability of power energized industry and machinery replaced manual labor.   Today, we are RETHINKING business fundamentals around; people, power and technology again.  As the private sector struggles with growth and the public sector aims to seriously reduce costs, I am convinced that the days of assuming there is little an organization can do about energy costs are gone, and that innovative leaders are focused on energy as a key input to operations and therefore an area worthy of scrutiny and new solutions.  Those same leaders define energy in a broader context, too, extending beyond electricity and traditional petroleum products to include components such as water and natural gas.  The most successful of their efforts likely go far beyond resource conservation initiatives alone; the big differences will be made by viewing and managing energy more strategically.  As such, key resources becomes the foundation of an enterprise-wide strategy that treats energy as a manageable asset capable of yielding significant efficiency, improved profits, enhanced competitive advantage, and designed to help insulate the organization from market uncertainty and risks.  In short, it is a strategy designed to both protect existing assets and create new economic and brand value.

This is an opportunity to stop looking at business as usual and create a new paradigm, a new way of thinking about the future.  Rather than being threatened by the need to change, these challenges should be embraced and used as a lever for innovation.  At Deloitte, we encourage our clients to rethink their energy approach on three specific levels: processes, technologies, and people.  Breakthroughs in data management systems, for example, can pave the way of better collection and analysis of information about energy use.  This will likely be followed and supported by changes in human behavior that take full advantage of the combined improvements in data capture and consumption processes and reporting.

The coming decade is expected to present difficult energy challenges for businesses and the public sector: will your organization be ready?  As with any dynamic situation, there is no need to wait for a silver bullet—you can start now; define your priorities to target for improvement, begin to identify viable solutions, introduce cost saving steps, and measure results associated with efficiency and better risk management.  By involving employees in the process, you also help them understand how their behavior impacts the big picture.  You’re on your way to establishing that new paradigm!

Rebecca Ranich
Director, Federal Energy & Resources Management
Deloitte Consulting LLP

 

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

Supply Chain Collaboration: All for one and one for all

When I look at a supply chain, I see a vehicle for driving value.  I know that by applying a sustainability lens to inputs and outputs up and down your supply chain, you can likely achieve savings and efficiencies for your company.

Now, just imagine the power of that same process if every supply chain participant collaborated in the effort!  Why?  Because whether you look at raw materials at the beginning of the chain or go all the way through to end-of-life, all parties share a common experience—there is only one revenue stream for every three expense streams.  They should make effective use of energy, carbon, natural resources, and waste management.  They might use different materials, different amounts of energy, produce different components or products, and throw off different types of waste or end-of-life disposal requirements, but every supply chain partner uses some form of raw materials and energy and produces some form of product and non-product.

We call exploring savings in these areas a “resource-focused approach” to supply chain efficiency.  By collaborating, supply chain partners can potentially achieve positive savings and value.  In fact, this is where the paradigm can shift—from incremental adjustments that lead to savings for one party to potential benefits for all parties.  In addition, many solutions uncovered in a resource-focused approach are relatively simple to implement, may feature rapid payback, and usually introduce no new risk.

The key is effective collaboration.  The output of one vendor along the supply chain becomes the input for another.  This dynamic can pave the way for building mutually beneficial relationships along the chain and can likely have a transformative effect on the performance of companies up and down the chain.  I also believe that companies who do this well may be better positioned strategically, financially, and operationally to seize new market opportunities and counter marketplace threats—from new competitors, commodity price volatility, and strategic sourcing issues.  Done well, this collaboration among supply chain partners can be a true win-win-win for all involved.

Sanjay Agarwal
Sustainability Leader, Operations and Supply Chain
Deloitte Consulting LLP