Earlier this week we talked about how China’s economy is already being effected by climate change and man-made water shortages. As another report this week points out, China is not the only place water resources are being strained and investors need to take note.

The Carbon Disclosure Project (CDP), an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world, just released their second annual Water Disclosure Global Report 2011 [PDF]. This survey of 190 companies from around the world found that over one-third are already experiencing water-related disruptions. The survey was taken at the request of over 350 institutional investors.

The goal of the report is to help companies that are recognizing the fragile nature of water resources and taking steps to transform their businesses “by encouraging meaningful and systematic reporting on water globally so that investors and their stakeholders can understand how companies are building water into their core business strategies, and so that leading practices can be shared.”

Continue reading ‘investors want companies disclosing water risks’ »

As the U.S. continues to languish in a stagnant economy and some E.U. member states seem to be headed for bankruptcy, some may think that China’s economic power is the most stable. However, that isn’t necessarily the case. There are more than a few issues China has to deal with to continue its amazing growth. As an example, last week, HSBC strategist Wai-Shin Chan wrote in an article for ChinaDialogue, that China is one of the world’s most vulnerable countries with regard to climate change.

Chan points out that the Chinese government is well aware of the impact climate change is already having on their economy and population and is making long-term plans. After all, water scarcity is already costing the Chinese economy 2.3 percent of its Gross Domestic Product (GDP) and factories have already had to close due to lack of water, and water prices are on the rise. To address the issue, Beijing is already putting in place tighter environmental regulations, and is starting to focus on water efficiency and conservation.

investors need to consider water risks

But, it’s not enough for the Chinese government to take steps, Chan wants investors to make sure they’re factoring in these same risks as they review their investment options.

HSBC has a list of questions it suggests investors use to asses risk levels, corporate strategies, and operational efficiency. But they do note that getting answers to the questions can be difficult as companies aren’t always aware of their full exposure or don’t want to disclose them. Here are a few questions from Chan’s list:

• Which companies are directly exposed to serious water availability constraints?
• Which companies are located in provinces with ambitious energy intensity reduction targets?
• Are the risks of resource stress in China understood at board level?
• What contingencies have been put into place to respond to disruption of resources?

If nothing changes, or not enough, it’s likely that China will face massive water shortages by 2030. And if the droughts continue, there’s reason to expect power disruptions, civil unrest, and more government action in the coming year. In the short and long-term, China’s water scarcity will have an impact on business.

What are you doing to protect your investment or the part of your supply chain that comes from China?

In the coming decades, expect to see nations pour billions more dollars into water infrastructure than oil infrastructure. While oil will remain a vital resource in many nations’ economies, the growth of water infrastructure and technologies is poised to outpace that of oil.

At the Singapore International Water Week last month, CLSA Asia Pacific Markets–a giant equity broker–estimated that annual global water demand would reach 6.9 trillion cubic meters by 2030. That’s 53 percent more than is used today.

The U.S. Energy Information Administration estimates that global oil consumption will reach 107 million barrels per day by 2030 (growth of 24 percent). The equivalent amount of water would be 119 billion barrels per day, making the market for water about 1,000 times larger if measured by volume.

Current infrastructure will not be able to support such an increase in demand. Many developing countries have begun massive infrastructure projects to prepare for future needs. In China, where water use is expected to jump 64 percent over the next two decades, its massive South-to-North Water Diversion Project made headlines recently for displacing over 300,000 citizens. The project will draw water from four rivers in the south and deliver over 44.8 billion cubic meters of water annually to the arid north. If completed in 2050 as scheduled, the water venture would be the largest of its kind.

Though the problem of water scarcity typically garners most of the public’s attention, it is the water industry’s infrastructure that will determine whether clean water gets where it’s needed. Huge investments will be required to build new water pipelines, reservoirs, and treatment plants, and still more will be needed to overhaul aging infrastructure in the United States and elsewhere.

The New York Times cited an Environmental Protection Agency (EPA) study that estimated the U.S. would need to spend $335 billion in the next 20 years just to maintain the existing water system. In New York, the maintenance tab could be $36 billion just for its municipal wastewater systems.

The public rarely concerns itself with the condition of the nation’s aging water system, but these days, a vital water pipe breaks somewhere in the country an average of every two minutes. Despite the looming infrastructure crisis, most of us take for granted, and pay mere pennies for, the water-to-tap system that delivers clean, drinkable water to so many (those with natural gas in their water not included).

The importance of water in the economy, like oil, is undisputable. With so many nations in need of supply and/or infrastructure, companies the world over are rushing to solve the problems. From desalination to water recycling technologies, sewage treatment facilities, and pipelines, the water industry has plenty of room for growth. Just as small oil service firms sprung up in the 20^th century to cater to niche demands and infrastructure efforts, so too will the companies of today flock to new water projects. If the 20^th century was the era of black gold, the 21^st may just be the era of blue gold.

photo credit: Zero-X / Flickr

Earlier this decade, beverage bottlers Coca-Cola Co. and PepsiCo were hit with harsh criticism from locals in India who claimed the companies were using up all the groundwater­–leaving locals high and dry. This not only damaged both companies’ reputations, but it also forced them to review how water, or the lack of it, would affect their businesses. Both companies have made dramatic advances, and Pepsi recently announced that it has achieved positive water balance in India. In other words, Pepsi would recycle and conserve water to ensure there was more water available than it took from the fresh water system.

If you ask an Indian citizen about the country’s water problems, you may be in for a lengthy conversation. Most people in India are acutely aware of how little water is available. Current Pepsi CEO Indra Nooyi recalls growing up in an Indian city where life was planned around water scarcity. She told Bloomberg BusinessWeek in 2007 that her middle class family had to wake up each morning as early as 3AM to get water for the day. That was the only time local officials turned on the water valves. Nooyi’s family would get up, fill all the buckets in the house with water, and then carefully manage its use. Two buckets were set aside for cooking, and two more were reserved for each of the children.

“You had to think about whether to take a bath,” Nooyi told the magazine. “You learned to live your life off those two buckets.”

Though water is scarce in India, it holds special significance for many of the country’s citizens. Some consider bathing a sacred act; others believe death is not properly marked until the person’s ashes are scattered in the Ganges River. However, despite water’s importance in Indian culture, the country suffers from some of the dirtiest, most-polluted water in the world. Pesticides, industrial pollution, and poor sewage treatment are just some of the reasons for the poor water quality.

Inadequate water management and over-pumping severely limit the availability of the precious resource. With much of the water heavily polluted and good water  either scarce or inaccessible, citizens have accused high-profile companies such as Pepsi of excessive water use. It doesn’t matter that (according to Nooyi) bottled water and soft drinks account for only 0.04 percent of industrial water use in India–making Pepsi a small part of the problem.

Broad-based boycotts of Pepsi products in India caused the company’s sales to drop by double digits. The company responded by focusing on conserving water, and helping to bring water to villages in need. Now, the Indian arm of Pepsi says it has achieved positive water balance. The company says it used 5.17 billion liters of water in 2009, but “recharged” or replaced in some manner 6 billion liters, a positive contribution of 836 million liters.

Pepsi achieved its positive water balance via conservation efforts, community programs, rain harvesting, and the building of check-dams (small dams that can be used to control the flow and level of water).

At a bottling facility in Palakkad, India, Pepsi was able to make significant reductions in its water use. A company spokesman told the Economic Times that the Palakkad facility is one of the company’s most efficient, saving an estimated 200 million liters of water–a 60 percent reduction in the last four years.

Sanjeev Chadha, the chairman and CEO of PepsiCo India, wrote in a blog post that Pepsi building check-dams for villages would be the best way to “rejuvenate the water supply.” While the company has built 13 check-dams, helped educate villagers on better water management techniques, and erected rain-harvesting units, some believe the company could do more.

Sunita Narain of the Centre for Science and Environment told the Economic Times, “It would be ideal if PepsiCo was replenishing all the water it consumes in areas where its plants are located. The scarcity and problem lies in those areas.”

Pepsi’s positive water balance in India is an accomplishment. Cutting water use at bottling facilities and assisting villagers with water resources are good steps toward repairing Pepsi’s reputation and tackling water scarcity. To be fair, there is only so much that Pepsi can do. The company’s soda business relies on water, and Pepsi sells bottled water as well.

Without water, however, Pepsi, Coca-Cola, and other bottling companies have no business. At its current consumption rates, some believe India will exhaust its water resources by 2050. And public outcry, as seen in India, can sway governments to support citizens over corporations and contracts.

The larger point here is not that Pepsi is doing the right thing for some villagers in India, or that it’s reducing water use at bottling facilities–though those are commendable steps. The point is that the company HAS to take those steps. The realities of the world’s water resources demand it. Companies are no longer free to take resources without thinking through the ramifications. In today’s water-scarce reality, Pepsi has to build check-dams for villagers in order to sell cola: that’s the point.

photo credit: Getting Water in India–Rupert Taylor-Price on Flickr, Check Dam–PepsiCo India

The Aral Sea is “one of the worst environmental disasters in the world,” according to Ban Ki-Moon, United Nations (U.N.) Secretary General. On a recent visit to Central Asia, Ban visited what is left of the Aral Sea, and flew over the basin to see for himself the arid salt flats left behind by the receding waters. The U.N. Secretary General suggested regional leaders need to cooperate solve the crisis.

The Aral Sea, once the world’s fourth-largest lake, has been disappearing since the 1960s, when planners from the former Soviet Union began siphoning water to grow cotton in what is now Uzbekistan. Now 70 percent smaller, the Aral Sea is incredibly salty, containing six grams of salt per liter–three times the safe limit for human consumption. No plants or crops can grow in such salty water. As the evaporation continues, the remnants of agricultural and industrial pollution are left behind.

When the wind blows in Uzbekistan, a mixture of dust, salt, sand, and chemical pesticides threatens the health of plants, animals, and humans. Because the dust clouds are filled with contaminants like heavy metals and DDT, villagers say everyone is ill. Many people have respiratory diseases, and the surrounding areas have the world’s highest instances of tuberculosis. In some places, infant mortality is higher, and people are developing liver and kidney diseases.

While news outlets like Reuters, UPI, and the Huffington Post have reported on Ban’s April visit and the environmental devastation, none went into detail about the real cause of the disaster: cotton farming.

Let us first say that we don’t have a problem with cotton. It is a global staple, and a vital commodity. Even so, cotton is an extremely thirsty crop, requiring over 700 gallons of water to grow enough cotton for a single shirt. And while growing cotton is necessary, in times of increasing water scarcity it is difficult to justify cotton farms in the middle of a desert.

It’s also important to keep in mind that after the Aral Sea began to dry up, the Soviets had to use more and more chemicals and fertilizers to grow the cotton. These additional chemicals have been left behind as the waters have receded, and in the span of 40 years, a former fishing and resort town has turned to a desolate village full of sick children.

Unfortunately, those errors aren’t limited to the former Soviet Union. Here in the United States, we are growing cotton in the deserts of California, Texas, and Arizona. It might seem strange that a nation would grow such a thirsty crop as cotton in the middle of a desert. However, these states represent the main cotton growing regions in the U.S., and all three states have suffered major droughts in the last five years.

The world will continue to grow cotton, and we will most likely continue to do so in these water-scarce regions. However, the lesson we should take away from the Aral Sea is that water resources can and do disappear. This “environmental disaster,” as Ban calls it, is not an beyond our control, rather the result of deliberate actions. Without discussing the causes of a disappearing lake, how can we prevent the same thing from happening in someplace like, say, Lake Mead?

With the gluttonous feast that is Thanksgiving now behind us, many have turned their thoughts to the December holidays. Few have considered next year’s Thanksgiving or the ones after that. The holiday could ultimately be stripped of its traditional bounty, however, if water scarcity and climate change continue unchecked.

Dwindling water supplies and ongoing climate shifts could bring about worldwide food shortages or dramatic increases in food prices. The latter is far more likely, but the result could be the same: An end to cheap, readily available food at a time of explosive growth in the world’s population.

The U.S. Drought Monitor has found that one third of the continental U.S. is suffering from abnormally dry, or drought conditions. Drought conditions are the most acute in the Western U.S., according to the report, produced jointly by the federal Department of Agriculture and the National Oceanographic and Atmospheric Administration. The nation’s groundwater, which provides 50 percent of the water used for drinking, irrigation of crops, and industry, is diminishing .

“Basically the groundwater is being depleted of its resource,” said Kevin Dennehy, project coordinator for the U.S. Geological Survey’s groundwater program. “It’s been happening for quite some time and it’s going to continue to happen. The removal of water from the aquifer is at a greater rate than water is being re-charged in the aquifer naturally,” Dennehy said in a story published by CircleOfBlue.org.

Scientists and resource specialists have warned that freshwater scarcity is hurting farm productivity. Farmers may see their crop yields decrease because there is not enough water, or because conditions limit the amount of water a farmer is allowed to use.

Even amid diminishing water resources, paradoxically, flooding is on the rise.

“We know that that’s already a problem,” Melanie Fitzpatrick, a climate expert at the Union of Concerned Scientists, told Circleofblue.org, “Spring flooding is a problem in agriculture in terms of farmers getting into their fields to sow their crops, and we’ve seen some really significant flooding.”

Climate change, food production, and water scarcity are inextricably linked. At the United Nations’ World Summit on Food Security, Secretary-General Ban Ki-moon declared, “There can be no food security without climate security.”

Even as climate change and water scarcity are making it difficult for farmers to increase yields, the world’s population is set to explode. The U.S. Census Bureau estimates that by 2050, the world population will reach over nine billion. Representatives of nations participating in the World Summit on Food Security have agreed that agricultural output must increase 70 percent by 2050. Yet, threats remain.

The U.N. Secretary-General told the summit gathering:

Weather is becoming more extreme and unpredictable. In many parts of the world, water supplies are declining, agricultural land is drying out. Food security and climate change are deeply interconnected. If the glaciers of the Himalaya melt, it would affect the livelihood and survival of 300 million people in India and China and up to one billion people throughout Asia. Africa’s small farmers, who depend primarily on rain to produce most of the continent’s food, could see harvests drop by 50 percent by 2020.

Now let’s get back to Thanksgiving. It’s my favorite holiday, and I am not prepared to have my future Thanksgivings jeopardized by solvable problems. If we’re not going to solve the water and climate problems because it is the right thing to do, we might as well consider solving them for reasons we care about – the turkey, ham, stuffing, cranberries, yams, potatoes, gravy, and various pies.

So don’t forget about the Thanksgivings of the future. One day, the thing we are most thankful for on Thanksgiving may be the food itself.

Photo credit: donkey in the drought stricken maize field by Ray Weil.

Do you like beer? If you enjoy a cold one from time to time, you should know that water scarcity is a potent threat to your future supply.  It takes nearly 20 gallons of water to produce a single pint of beer. Fortunately, many beer producers either already have a water conservation strategy, or are working on one.

MillerCoors (a partnership of the U.S. operations of SABMiller and MolsonCoors) launched a website that does the predictable by touting its water conservation efforts and the company’s corporate social responsibility (CSR) initiatives. But unlike many other online efforts, MillerCoors’ new site also was designed to draw consumers into the conservation movement. Great Beer Great Responsibility, allows visitors to “participate in three areas of focus–environmental sustainability, alcohol responsibility, and people and communities.”

“The new website gives us a unique opportunity to connect with consumers who enjoy our great beers, and would like to learn more about the responsibility behind those brands,” said Cornell Boggs, chief responsibility and ethics officer for MillerCoors, in the press release announcing the new site. “In addition, the site invites consumers to share in our action, by pledging to conserve water, plan ahead for a safe ride and contribute ideas that represent how big change starts with small steps.”

Of particular interest to us is the fact that MillerCoors is encouraging visitors to pledge to conserve water, and is tracking the water saved.

The average American uses more than 100 gallons of water each day.  Can you try to use less?  We hope so.  After all, water is the most important ingredient in beer, and at MillerCoors, we’re always trying to make more beer by using less water.  Please join us…. Together, we can make a difference.

It’s easy for visitors to pledge to save water by choosing from a list of easy things to do, such as:

• Turn off the water while brushing your teeth
• Turn off the hose between rinses  when washing your car
• Shorten showers by a minute or two
• Run the washing machine only when it’s full

Every American can adopt those small changes and others to conserve water. We are pleased MillerCoors is encouraging its consumers to take action, discuss water consumption, and share their personal conservation efforts. We all have a stake in ensuring that there is plenty of water for generations to come.

After all, if there is no water, there can be no beer.

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Without water there could be no human life on earth. That is a simple, clear fact that is indisputable. It is so important, nations are willing to relocate hundreds of thousands of people to divert water to a new location. But what would happen if the earth no longer had enough freshwater to support the population, or corporate interests controlled the water that was available? War. At least, that’s the theory behind the documentary Blue Gold: World Water Wars.

Filmmaker Sam Bozzo and his team present the idea that future wars will be fought over water resources, just as wars today are fought over oil, gold, or diamonds. Narrated by Malcolm McDonald, and based on a book by Maude Barlow and Tony Clarke, Blue Gold is a shocking, engaging film full of expert opinions, historical references, and the politics behind water resources. The movie, which won the audience choice award for environmental films at the 2008 Vancouver Film Festival, documents our mismanagement of water resources and the rise of corporate control over them worldwide. Given the importance of the subject, this film should be high on everyone’s Netflix queue.

Here are some water facts from the film:

• 97 percent of the world’s water is salt water. Three percent is fresh water–and much of that is polluted.
• We are pumping out 30 billion gallons of water a day and depleting the earth’s groundwater 15 times faster than it can be replenished through natural systems.
• Dr. Michel Kravcik believes the earth’s water systems could collapse in just 50 years.
• Florida has giant sinkholes from over-pumping groundwater.
• Manufacturing a car takes about 335,000 liters of water.
• In much of Africa, Coca-Cola’s Dasani brand water costs more than the company’s flagship cola.
• The Aral Sea, a giant lake in the former Soviet Union, has been mostly drained to irrigate cotton crops being grown in the desert.
• To get water to some Southern California homes, it must be transported via pipeline from 1,400 miles away. That’s more than half the width of the United States.
• The world’s largest water resources are located in Brazil, Canada, and Russia.
• Most U.S. cities get water from private companies.

As yet another example of the risks of water scarcity, China has begun to resettle 330,000 people so it can divert water from the Yangtze River to northern China. A canal is being constructed from the Danjiangkou reservoir in Bubei all the way to Beijing, according to the Xinhua news agency. Those living in central provinces such as Henan and Hebei are being relocated to make way for the canal.

The multi-billion-dollar project was originally envisioned as a three-line system of canals and pipes, moving water via eastern, middle, and western routes to the north. The canal from the Yangtze River is part of a central line in the system. The plans called for the middle and eastern routes to be completed by 2010. However, objections from environmentalists, difficulties resettling the population living in the construction zones, and the cost of treating badly polluted water have helped delay the project’s completion until 2014.

The China’s South-North Water Transfer Project document (PDF) shows that northern China has only 19 percent of the country’s water resources, yet accounts for 47 percent of the population, 64 percent of the cultivated land, and 45 percent of the country’s GDP. In order to sustain economic development and growth in the north, water resources must be diverted. When completed, the water diversion project is expected to push about 460 billion cubic feet of water through the central canal each year.

China has outlined the threat of the northern water crisis in the South-North Water transfer document. The report declares that the lack of water resources in the north:

• Is an obstacle to the enhancement of people’s living standards
• Causes further worsening of the ecological environment, and is associated with environmental problems like land sinking and seawater intrusion
• Restricts agricultural development and threatens food safety
• Threatens national economic development, and will hurt the national economy should the water crisis worsen

Supply infrastructure alone may not be enough to solve China’s water problems. A World Bank report indicated that water prices should be allowed to rise to reflect the scarcity as well as to promote conservation. Whatever steps China takes to resolve its water scarcity, one thing is clear–its economy and people cannot thrive without water resources.

photo credit: PeaMasher 2002

This is World Water Week in Stockholm, where the goal is to raise awareness around access to water as development and climate stress an already limited resource. As water scarcity continues to gain attention, so should the companies actively working to reduce their water footprint.

Kraft Foods is a recent example of a company making a big splash in the news for using less water. They have managed to reduce their water use by three billion gallons in the past three years, and have exceeded their water reduction goal two years early.  As Steve Yucknut, vice president of sustainability, says:

We’re changing behavior and getting results. Around the world, thousands of our employees are working on projects that help us reduce our environmental impact. We focus on manufacturing, since that’s where we use the most water for internal operations. And we pay particular attention to water-scarce areas, where the need is greatest.

Here is a company who appears to really understand the risks posed by water scarcity, and has taken steps to mitigate those risks. As we look at some of the programs Kraft has implemented, what is impressive is how effective small changes like fixing leaks, reusing water, rethinking cleaning processes, and developing closed loop systems have been in generating major reductions in water use. These changes have been so effective Kraft shrank its water use 21 percent since 2005.

Not only are they saving water, but improving inefficient machinery, infrastructure, and processes lead directly to cost savings. For example, in their Atlanta, Georgia bakery, employees reduced the amount of water used for cleaning specific equipment and also eliminated unnecessary re-cleaning of equipment. Thus increasing the number of line production hours.

We believe every company can and should review their water, source material, and energy needs. By ensuring that we conserve, even abundant resources, we create a more competitive business and a better planet. Is your business creating a sustainability program? We’d love to share ideas, technologies, and programs from organizations large and small.

For more about Kraft Food’s sustainability program, which includes details on how they’re making progress on reducing CO2, solid waste, and energy use, see their Better World website.