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

CDP Report 2011: Clear signs of growing awareness of critical water issues - and opportunities

Recent release of the CDP Water Disclosure Global Report for 2011¹ brings evidence that the dial has moved on how companies perceive water scarcity as a business risk.  Just since the 2010 report, a significantly larger number of companies recognize that water scarcity represents a very real business risk in the near term.  It is becoming clear that water is a resource issue many leading companies are feeling now, or that they expect to feel in an impactful way in the next few years.  Nearly 60% of CDP study respondents identify water as a substantial risk to their business, and one-third have already suffered some type of recent, water-related business impact.

In addition, another key finding in this year’s study was that almost two-thirds (63%) of respondents view water issues as an opportunity—for cost reductions associated with efficiency, to new revenue from water-related products or services, and for brand enhancement.  Further, 79% of those potential opportunities are expected to impact business in the next five years.

What is our take on these substantive shifts in business perspective?  First and foremost, this topic has transitioned from being one that is “interesting” to watch to one that is essential to understand and translate into constructive action.  We believe the 2011 findings show that business has entered a new phase in which water issues are viewed as having:

• Strategic business implications with associated risk
• Near-term impact—whether risk or business opportunity
• Potential for innovation in products (e.g., water treatment), services (e.g., data analytics), or relationships (e.g., water is a shared resource that requires collaborative stewardship efforts)

In particular, the study demonstrates that water can have value that goes well beyond its price.  For some companies, for example, it has reputational risk and corresponding brand value.  For others, it has regulatory risk, and, as such, should be managed as a compliance issue.

The study’s response rate alone demonstrates that water scarcity interest and concern is on the rise.  The CDP study seeks respondents from hundreds of the world’s leading companies, including those in the FTSE Global Equity Index Series (the Global 500).  The 2011 survey generated a higher response rate overall—increasing, for example, to 60% from 50% among the Global 500 as compared to respondents from that group in 2010. 

In summary, we are seeing the shift to a new paradigm in water management, where water is recognized as a strategic resource. Growing populations and increasing economic activity associated with declining water access and quality can lead to increased competition for water.  As is usually the case, the more everyone competes for a key resource, the greater its value.  We are proud to be part of CDP’s effort to increase awareness of the importance of water related risks and opportunities. We believe water will likely continue to be a factor in business success—even competitive advantage, survival—for a long time, and we’re working with concerned companies to transform their businesses accordingly. 

Will Sarni
Director
Deloitte Consulting LLP

¹CDP Water Disclosure Global Report 2011, Carbon Disclosure Project, 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 © 2011 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

The Value of Water

What is the value of water?  March 22^nd is World Water Day and a good time to reflect on this question.  

For most businesses, the price of water remains relatively inconsequential compared to other operating costs. The real value of water for business is tied to intangibles such as brand, reputation, license to operate, business continuity and as a driver for innovation.

But there is another aspect of the value of water for business -- arguably the most important aspect -- that is tied to the social dimension of water.

Currently, some 1.1 billion people lack access to clean water, and more than 2.5 billion people lack access to safe sanitation.  The implications of these statistics for a steepening scarcity curve are staggering, particularly as demand for water increases globally in many major sectors – industrial, agricultural and domestic.  The business implications are similar to the implications for society:  increased competition for water and a workforce that lacks access to a basic resource.

Based on innovative ideas presented at the Hult Global Case Challenge, solutions can be identified to help solve the water scarcity issue. I participated as a judge a few weeks ago in the second annual Hult International Business School Global Case Challenge (courtesy of Jack Russi and Cathy Benko from Deloitte).

The competition is focused on addressing the global clean water crisis in partnership with Water.org, an organization founded by Gary White and Matt Damon, and The Clinton Global Initiative (CGI). In competitions held in Boston, San Francisco, London, Dubai, and Shanghai, the international competition “crowd-sourced” innovative ideas from some of the world’s top students. The Hult Global Case Challenge, as a CGI member, has committed to working with fellow CGI members to solve one of the world’s most pressing resource issues.

The winners of each Regional competition will compete in the Global Final in New York City on April 30, 2011, co-hosted by the CGI. At the final event, the participating teams will present their refined solutions to a panel of executive judges. Water.org will receive a USD $1 million donation from Hult International Business School, which can be used to help see the winning team’s solution implemented.

The Hult competition draws attention to the alarming and indefensible lack of access to clean water and sanitation among many populations.  It is driven by a global business school competition, and social issues can no longer be artificially divorced from economic and environmental issues. (The cornerstone of sustainability is, in fact, the integration of economic, social and environmental risks and opportunities.) 

Based upon the passion, creativity and commitment of the students participating in the Hult Global Case Challenge, I am confident new pathways to solving the water scarcity challenge will be identified.

William Sarni
Director, Deloitte Consulting LLP

Will Sarni is a Director with Deloitte Consulting LLP and leads Enterprise Water Strategy for Deloitte Sustainability Consulting.  He is an internationally recognized thought leader on sustainability and is the author of the book, Corporate Water Strategies (Earthscan 2011).