Water is key to countless businesses and industries. As a result, water risk is a growing business risk, particularly in water stressed areas. Now, WWF has further developed a tool that can help enterprise build in future water resilience and reduce its exposure to water risks.
Reducing water risks for business
New elements of an online tool for assessing, valuing and responding to water risk have been launched by the WWF. The additional functionality aims to help companies better understand future water risks and drive more effective corporate action on climate and water resilience.
There is clear evidence that water, or rather a lack of water, represents a growing business risk. The World Bank’s High and Dry Climate Change, Water, and the Economy report notes that some regions could see their economic growth rates decline by as much as 6 per cent of GDP by 2050 as a result of water-related losses, for example.
Exacerbated by factors such as climate change, these risks and the value associated with them are only growing. WWF notes, for instance, that the global GDP arising from areas of high water risk could rise from a 10 per cent share in 2020 to some 46 per cent by 2050.
Recognising the challenge, the WWF has launched new parts of its WWF Water Risk Filter. This online tool now allows businesses and investors to assess water risk through several different scenarios (Optimistic, Current Trend and Pessimistic) for 2030 and 2050.
Noting the significant uncertainty associated with climate change, the tool is aligned with Task Force on Climate-related Financial Disclosure (TCFD) recommendations that companies and financial institutions apply scenario analysis for assessing climate-related risks and opportunities.
"The global GDP arising from areas of high water risk could rise from a 10 per cent share in 2020 to some 46 per cent by 2050."
The impacts of climate change will primarily be felt through the water cycle and it is therefore critical for any economic analysis to comprehensively incorporate water.
As Ariane Laporte-Bisquit, WWF Water Risk Filter Lead, explains: “Companies are finally waking up to growing water risks and the need to take urgent action to reduce their risks and tackle shared water challenges. By harnessing the new scenarios in the Water Risk Filter tool, companies and investors can better assess, respond and plan for climate and water resilience.”
How to determine business resilience
Based on climate and socio-economic changes, the Water Risk Filter enables companies and investors to perform forward-looking scenario analysis to evaluate future climate-water risk exposure and inform long-term resilience planning and strategy. The tool comprises four central themes, Explore, Assess, Value and Respond.
In the Assess section, for instance, corporate entities and others are able to users enter simple information on the sector and the locations of their facilities in order to assess basin-related water risk.
Based on location, this initial assessment uses the Water Risk Filter’s 32 water risk data sets and pre-selected industry weightings. Basin risk scores at specific facilities and for an entire asset portfolio are generated.
Supplying information on business activities allows users to assess their company’s operation-related risk exposure based on their performance and potential impacts on the basin. Subsequent analysis allows users to assess and visualise risks across countries, a basin, a sector, commodity, or risk indicator and score.
Exploring water opportunities
In the future, the Water Risk Filter aims to provide new ways to not only analyse water risks but also explore opportunities related to water. WWF says it will be developing a new Analyse opportunity tab, for example.
"The Water Risk Filter aims to provide new ways to not only analyse water risks but also explore opportunities related to water."
Key to managing business risk is an accurate valuation and this forms a significant element of the WWF tool, in its Water And ValuE (WAVE) Tool for example.
Using CDP Water Security data, WAVE will illustrate how water risk events can affect financial statements from revenue loss due to droughts to depreciation of assets due to floods based upon a few primary inputs such as automatically generated water risk event probabilities. Additional influences can be then added, such as user financial data which can be securely included on the desktop-based tool.
The Water Risk Filter also includes a mitigation toolbox section dedicated to exploring actions and responses to address potential water risks. Dynamically linked to specific risk assessment results for any given site or portfolio, the tool provides a customized set of response actions.
WWF notes that each recommended action is linked to an array of different water stewardship frameworks, such as the CEO Water Mandate Water Stewardship Toolbox, Alliance for Water Stewardship, CDP Water Security, Ceres’ AquaGauge and the Sustainable Development Goals. A further tab homes in on industry best practice through setting science-based water targets.
Understanding water risks in 2030/2050
Global brewing group Carlsberg was one of the first major companies to test and use the new WWF Water Risk Filter scenarios to understand how water risks may evolve in 2030 and 2050 under different scenarios and across their brewery portfolio.
“Water is essential to our products and for cleaning during brewing. But in a changing climate, water risk will be more widespread, reducing the quality and availability of water,” says Simon Boas Hoffmeyer, senior director sustainability at Carlsberg Group.
“That’s why we have worked with WWF to better understand this risk, in order to initiate mitigating actions that improves our resilience.”
"In a changing climate, water risk will be more widespread, reducing the quality and availability of water. That’s why we have worked with WWF to better understand this risk."
Water runs through the veins of the global economy and, one way or another, it is essential to almost all businesses. Given the diverse physical, regulatory and reputational water risks that businesses face, water risk can potentially manifest itself in many forms.
For companies, the financial value associated with water risk is a key consideration and with worsening water security worldwide, companies and investors are increasingly concerned to discover significant risks hidden in their operations, supply chains and investments.
Tools like the WWF’s Water Risk Filter allow them to assess, value and mitigate such risks before they can explode into a major corporate crisis.