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2 posts from January 2010

01/25/2010

Water: We can’t take it for granted any longer

Do you know what happens when you turn on the tap at your kitchen sink? Are you aware of the miles of pipes and infrastructure that treat and deliver each drop of water you use and then conveniently take it away once you’re done with it? Most Americans are completely unfamiliar with where their water comes from, what it takes to treat it to useable purity levels (for both domestic and industrial use), and just how scarce fresh water may soon become in certain parts of the globe. I think that’s going to change over the next decade.

Just to make the point, only 3% of the earth’s water is available as fresh water. While parts of the US and in other areas of the globe are facing record-breaking drought conditions, our water supply infrastructure is crumbling and requires major capital investment just to keep up with maintenance. Unprecedented levels of water scarcity plus more domestic and industrial demand for water equates to a potentially unsustainable level of global water consumption.

So what does this mean to businesses? It’s time to start thinking of water and uninterrupted access to it as a strategic issue.

Changing Economics
We don’t pay for water directly – we pay for the infrastructure to deliver it. What if that changed? What if, like purchasing mineral mining rights, businesses had to pay for access to water? What if that equated to having to pay even two cents more per gallon of water? Right now, the average cost of water is $0.002 per gallon. Any increase in this number would turn the economics of beverage manufacturing upside down, as for many other industries. (Did you know it takes about 920 gallons of water across the full lifecycle to make a pair of jeans?) As useable water becomes scarcer due to pollution and increased demand, it is entirely realistic to think that the economics of water and how we use it will change dramatically.

What we’ll see in the future
Going forward, we’ll see increased scrutiny of the use of water in the production and services across virtually all industries, but most significantly in energy, and consumer and industrial products. This will be not only from an operational efficiency standpoint but also for the sake of regulatory compliance or avoidance, and a means to avoid treatment costs. We’ll also see a longer-term perspective and emphasis put on water availability when companies select where to operate, and increased demand for public disclosure of water consumption1. All of these require companies to have an intimate understanding of their direct and indirect water footprint, consider what sustainable levels of water consumption would be at a local level, assess any business continuity risks they may face if water were no longer available or were more expensive to obtain or treat, understand any growth constraints water scarcity may create, and place he concept of water supply into long term strategic planning efforts.

Designing a water strategy
Right now, there is an opportunity to reap benefits - both tangible and intangible - through early identification of water related risks and opportunities. This goes beyond being smart about facility location and strategic sourcing. A comprehensive water strategy reflects not only where water is going to be coming from, but also how to ensure that it remains unpolluted, it is withdrawn at a sustainable rate, and that the interests and concerns of regulators, employees, the financial markets, and local communities are addressed.

For example, to address water quality challenges and engage local stakeholders, a company may invest in local watershed conservation initiatives to help ensure a safe, clean, and reliable supply of water for both the company and the community. This creates an opportunity to engage local stakeholders and establish a partnership for the welfare of the local economy.

Pursuing a water strategy involves comparing the cost of action to the benefits derived from taking action, as well as the cost of inaction. To that end, companies should consider three core goals related to water:

• Move beyond basic regulatory compliance
• Ensure continued access to supplies of useable water at acceptable costs
• Maintain “license to operate” by responding to community needs and concerns

Unlike the impact of carbon dioxide and other greenhouse gases, which is something we can’t readily see or taste, and which some think is very far away from impacting our lifestyles, water is not only critical for our survival but also lubricates the global economy.

Water strategy is becoming a business imperative. Without deliberate planning and careful consideration of what sustainable water use really means, even moderate business consumers of water will be exposed to increased risk and will have lost a significant opportunity for competitive advantage.

And isn’t that what being a “wholly sustainable enterprise” is meant to avoid?

Lee Solomon
Manager
Deloitte Consulting LLP


1
Hoekstra, A.Y., “Water Neutral: Reducing and Offsetting the Impacts of Water Footprints.” UNESCO-IHE Institute for Water Education. March 2008.

01/04/2010

Where do we go from here?

After two weeks of heated debate (and not to mention two years of discussions after Bali), the Copenhagen Conference of the Parties has drawn to a close with the issuance of the “Copenhagen accord.”

This accord “takes note” of the need to hold temperature increases to 2 degrees Celsius (to be reviewed against 1.5 degrees Celsius in 2015) but doesn’t set targets for reduction of greenhouse gasses. 

With no reduction goals or incentives to become more carbon efficient, businesses worldwide will likely still be seeking additional clarity about how they can most effectively move forward in a carbon-constrained world. Moreover, the absence of concrete reduction targets, as well as the omission of any discussion of the future of the clean development mechanism, may slow progress toward a carbon price (the price of carbon in the European ETS has been in decline since last week, presumably at least in part because of this uncertainty).

On the other hand, commentators are questioning the ability of the United Nations to bring negotiations to a head in such an event. The requirement for unanimity does mean that the minorities—in some cases to individuals—can have a lot of control over the outcome of the conference. 

Steps that were taken include:

  • The accord did contain a 2 degrees Celsius target.
  • It engaged the United States and developing countries, including China and India, in the need to do something about their emissions.
  • It brought tropical rain forests into the debate through the REDD+ mechanism.
  • It set a goal of mobilizing a fund to help developing countries with adaptation.
  • Political leaders—presidents, prime ministers—rather than environment ministers and negotiators were personally engaged.

So the process is still ongoing. That said, there seems to be a consensus among attendees on how the conference could have gone more smoothly:

  • Direct the interim negotiating teams to get to solutions—consensus is that the key to success here is to get the political leadership engaged early rather than at the last minute.
  • Restrict the size of teams. Consensus is that 6,000 is not a good negotiating group.
  • Keep the “tourists,” NGOs, and other observers to a minimum in the negotiating area. Consensus is that they just added to the hysteria.

We’ll have to wait to see what emerges in the next few weeks to establish the international path, but, moving forward, we expect more political leadership and less reliance on an annual jamboree. In the short term, however, country-level legislation is what’s likely to drive the climate change agenda and have the biggest impact on business.

Nick Main
Deloitte Touche Tohmatsu (DTT) Global Leader,
Climate Change & Sustainability