Anna Poberezhna: Water risk is a business risk – it’s time to rethink
Ensuring water security with innovation
NASA reports that a third of the planet's 37 major aquifers are drying up, and today many of the world’s major rivers no longer reach the sea.
As a result of pollution and destruction of water systems, between 1970 and 2010 freshwater species declined by 76 per cent, more sharply than species in land or marine ecosystems.
With the increasing challenge of strained water supplies and limited access to clean water, it means without further resilience, ecosystems and stakeholders are being put at risk. Both the private and public sectors face financial and non-financial water-related risks and impacts that require integrated actions.
Water risk has become a business and financial risk: it’s about top-line revenues and access to the capital markets.
A long-term opportunity
Water is the natural capital asset that binds all other natural capital assets together.
However, at the moment, we face a broken chain of definitions and lack a common exchange between investors, businesses, governments, local and indigenous communities.
“That has resulted in stagnated development of the value of water for a diversified group of stakeholders.”
That, in turn, has resulted in delayed or stagnated development of the value of water for a diversified group of stakeholders and holistic governance.
Working collectively will help to transition from outdated supply chain models to value chain ecosystems. The cumulative impact management and integrated water management is the only way forward.
To implement the above principles, manage risks effectively and to create shared value opportunities we need to build trust, clarity and forward-thinking models between the participants through better data management and innovative finance models.
Connecting digital and physical
We face an expected water infrastructure gap of between $6.7 trillion - $10 trillion by 2030. Our joint mission is to ensure global water security, to tap into $10.1 trillion sustainable business opportunities and create 395 million new jobs by 2030.
To achieve these ambitious goals within 10 years, technology will play a pivotal role along with multidisciplinary experts; and not just from the cost-efficiency perspective, but also as an enabler of new opportunities.
One example is blockchain, a digital instrument and technology that brings an added value in terms of the efficient management of a vast quantity of data in a local safe and secure mode (in terms of authenticity). This will enable visibility into the performance-based measurement and verified accountability.
According to Gartner, blockchain is set to generate $3.1 trillion new business value by 2030.
According to recent studies and use cases, in mining, blockchain can potentially save 20 per cent in the back/middle office operations by decreasing the downtime and improving redundancy.
Four steps to translate water risks into opportunities
To translate water risks into opportunities, incremental steps are required.
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A common framework for understanding water valuation, risk and stewardship - we can observe evolution taking place already through a range of initiatives. These include the Global Water Resource Group 2030, AWS, WWF Fresh Water Initiative, Integrated Accounting (SASG and GRI), CDP, CEO Water Mandate, IFC performance standards and others
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Development of new international standards connected with the regional policies especially in the natural resource export-oriented economies (i.e. Chile, Peru, Australia, India, Indonesia and others)
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Digital infrastructures powered by innovative technologies (blockchain and AI) that would enable value chains and new business models within existing setups
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Sustainable and innovative finance models to boost the transition and open up new opportunities.
Where do we start?
A prolific macro strategy is critical. However, as we all know, the devil is in the detail and execution. So, where do we start?
After reviewing the most water-intensive and water-dependent industries, operating in the remote and high-water risks regions, it is clear that they require the most attention and prime action.
The solutions can be broken down into three categories:
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Short-term (digitalisation: availability of better quality trusted and auditable data)
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Med-term (improved risk management and unlocking innovative/sustainable finance opportunities)
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Long-term (shared value ecosystems creation and scaling).
Digital and data harmony
Digitalisation and data harmonisation come under the first and primary action category.
Ground level data should be bundled and integrated with other parameters and metrics. This will enable better-informed decision making both on the internal and external levels: operational, corporate, regulatory or investor community.
There are a lot of classic challenges associated with this task which need to be solved: non-existent or lack of required data, lack of consistent data, lack of unbiased or “clean” data.
Hence, the priority should fall on the consolidation and normalisation of the disaggregated and project-level that can be interpreted by different stakeholders.
“When operations have to be managed more automatically and remotely, blockchain technology is becoming essential.”
To do so, we would need to have an underlying framework as it is easy to create dashboards and analytical reports, and indexes even from simple Excel Spreadsheets once we have a standard unit of exchange.
In the times when the operations have to be managed more automatically and remotely, blockchain technology is becoming essential, especially when it is paired with other technologies, including AI and IoT.
Risks and impacts
When it comes to risks and impacts: what can't be measured and assessed dynamically - can't be managed.
“Water is the proxy for many risks directly or indirectly: be it physical, market, regulatory or reputational risks.”
Water is the proxy for many risks directly or indirectly: be it physical, market, regulatory or reputational risks.
While the majority of operations and investments are global, the water risks are location-dependent and are specific to operations.
Also, the value of water changes in space and time and differs by stakeholder, even within the same company (on a department level - technical, investor relations, operations, compliance, etc.).,
Therefore, to mitigate potential losses and ensure resilience at all levels, we need to have a dynamic risk-management in place, which requires streamlined comparable data in the real-time.
As a result, this, in turn, will improve investors’ ability to assess and price water-related risk and to unlock capital for opportunities.
The old-new normal
We need to embrace the "old-new normal"- shared value chains and ecosystems.
Currently, water management and water infrastructure remain fragmented in terms of the ownership, operations and investments.
Water utilities/public services, industrial users and agriculture often operate in silos.
However, with the growing demand and competition for clean water access and variability of water availability, this is no longer a sustainable strategy.
To ensure the security of the freshwater access and water supply for all stakeholders in the river basin (catchment) or the transboundary regions, an ongoing assessment is needed.
We need to address variable water availability, water use and climate risks, including high impact events like flooding and droughts. Secure and yet transparent data governance is a critical factor for that.
This will secure not only business resilience but also will minimise potential risks of social conflicts, associated with water-related risks, providing stability in regions and enhance investor confidence and attractiveness for investment opportunities.
It’s time to roll up the sleeves
The blockchain-based platform can serve as an enabling platform for integrated water resource management.
On top of that, a decentralised digital financing infrastructure could enable the full spectrum of investors to invest directly in nature-based solutions and sustainable infrastructure.
This would transform high CAPEX assets and illiquid assets into tradeable digital assets and increasing financing flows for sustainable development.
Tokenisation of nature-based solutions and infrastructure will also enable automation of transaction-related processes and reduce reliance on intermediaries, with a reduced cost of administrative functions.
Roll the sleeves - we have a long way ahead, which we need to create together - people, profit, planet, peace.