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Water resources at the corporate levelWater resources at the 
corporate level
Moving from a risk-based approach 
to active management

Water scarcity, the responsibilities and risks: 
Over the last decade, much has been written about 
water scarcity and the responsibilities and risks of 
businesses related to it. Along with growing water 
pollution and quality issues, the water picture has 
come dramatically back into focus, as scientists 
are able to make much more precise connections 
between the earth’s water cycle, extreme weather 
events (such as severe heat waves and drought), 
and climate change.
Given the increasing occurrence of unusual weather 
patterns, it is no longer enough for businesses 
merely to identify the places where their operations 
are vulnerable to water shortages or water quality 
problems. They need to actively manage those 
risks — Ernst & Young recommends g213 ve steps they 
can take — and beyond that, to manage water as a 
shared resource.
What is the issue
?
2

Several macro-conditions are having a great impact 
on water availability and quality: 
 g377 Rising population and rising demand: The 
burgeoning middle class now accounts for more 
than 28% of the world population.
1
 In addition, 
92% of the world’s water footprint
2
 is now 
attributed to agriculture. In this context, nearly 
900 million people today
3
 do not have access to 
safe drinking water, and regions with constrained 
supplies of water and rising demand are likely to 
experience further water shortages in the future. 
 g377 Water quality degradation in environmentally 
sensitive watersheds: A report by the Food and 
Agriculture Organization of the United Nations 
(UN) The State of the World’s Land and Water 
Resources for Food and Agriculture,
4
 notes 
that despite increases in food production and 
improvements in agricultural practices, excessive 
demographic pressure and unsustainable 
farming methods have contributed to large-scale 
environmental degradation. In this context water 
quality, as well as water supply is at prime risk.
 g377 Scale of global deforestation: Forests are an 
essential part of the water cycle, regulating water 
1
 The New Global Middle Class: "A Cross-Over from West to East,"
http://www.brookings.edu/~/media/research/files/papers/2010/3/
china%20middle%20class%20kharas/03_china_middle_class_kharas
2
 The National Academy of Sciences. "The Water Footprint of Humanity," 
http://www.pnas.org/content/109/9/3232.full.pdf+html
3
 UNICEF, "Progress on Sanitation and Drinking Water,"
http://www.wssinfo.org/fileadmin/user_upload/resources/1278061137-
JMP_report_2010_en.pdf
4
 FAO, "State of the World’s Land and Water Resources for Food and 
Agriculture," http://www.fao.org/nr/solaw/solaw-home/en/
5
 WWF, 2011. "Living Forests Report, Chapter 1: Forests for a Living 
Planet."
6
 National Academy of Sciences, "Perception of Climate Change."
https://www.cdproject.net/CDPResults/CDP-Water-Disclosure-
Global-Report-2012.pdf http://www.pnas.org/content/
early/2012/07/30/1205276109.full.pdf
run-off and mitigating the risks of flood and 
drought. Currently, only 31% of the earth’s land 
surface remains covered by forest, out of which 
only a third is primary forest.
5
 
 g377 Extreme weather patterns: According to the 
National Academy of Sciences, climate change 
is helping to exacerbate water risks as global 
warming and higher surface temperatures 
contribute to extreme droughts in some regions.
6
 
In others, because the ability of the atmosphere 
to hold water vapor increases rapidly with higher 
temperatures, heavy precipitation and flooding 
are the result. 
3

 g377 More businesses are being affected by water 
issues. Carbon Disclosure Project’s CDP Water 
Disclosure Global Report
7
 in 2012 found that 
53% of the Global 500 have experienced 
detrimental water-related business impacts, such 
as business interruption and property damage 
from flooding, with associated financial costs 
for some companies as high as US$200 million. 
Industries such as beverages, biomass, food and 
agriculture, and chemicals that rely on plentiful 
water are particularly exposed to the risks of water 
shortages or poor water quality.
8
 
7
 "CDP Global Water Report 2012," Collecting responses to rising 
water challenges, https://www.cdproject.net/CDPResults/CDP-Water-
Disclosure-Global-Report-2012.pdf 
8
 "CERES," A Framework for 21st century water risk management. List 
of high, medium and low priority sectors likely to incur water risk. 
http://www.ceres.org/resources/reports/aqua-gauge
9
 USDA, http://usda.gov/wps/portal/usda/usdahome?contentid=2012/ 
08/0260.xml&navid=NEWS_RELEASE&navtype=RT&parentnav=LAT
EST_RELEASES&edeployment_action=retrievecontent
10
 UN News Center, http://www.un.org/apps/news/story.
asp?NewsID=35456&Cr=SANITATION
Ernst & Young’s 
thought leadership 
piece Preparing for 
water scarcity: raising 
business awareness 
on water issues offers 
further background, 
highlighting the drivers of water risk 
and methods to achieve responsible 
corporate water management.
 g377 The economic costs of extreme weather are 
proving to be very high. For example, in 2012, 
the US Department of Agriculture declared
more than 50% of all US counties as natural 
disaster areas because of severe drought,
9
 which 
affected millions of acres of cropland, suppressing 
farm profits and driving up the price of soybeans 
and corn.
 g377 Increasingly, water is a significant issue in 
businesses social license to operate. In July 
2010, the UN declared
10
 safe and clean drinking 
water as a human right, pushing companies to 
responsibly source water in the communities 
where they operate.
?
Why is the issue
becoming more acute now
4

 g377 Strategic: Not incorporating water availability into 
the enterprise risk dashboard or internal audit 
plan, and not fully integrating the right supply 
chain leaders into the organization’s strategic 
planning efforts, could impact business continuity.
 g377 Compliance: Policy restructuring by local 
governments can create compliance requirements, 
restrictions in terms of water use and fines relating 
to pollution. 
 g377 Operational: Lack of water availability can directly 
impact operations and production targets. 
 g377 Financial: Losses can mount as a result of 
production decreases and regulatory compliance 
as well as increased costs of purifying and 
transporting water.
 g377 Reputational: Local competition for water 
resources and a failure to contribute positively to 
the health and sustainability of the local watershed 
can affect a company's social license to operate.
Informed executives can start to manage water more 
effectively once they understand where water poses 
material risks in their direct operations and supply chains. 
Corporate water risks have been well documented for 
over a decade now, and Ernst & Young divides them into 
g213 ve generally accepted risk categories.
Measuring water data is key to management of 
operational and supply chain risks
Ernst & Young’s observation among our 
clients across a wide breadth of sectors 
points to an approximate six-to-nine-
month lag between the time water invoices 
are received, reviewed and aggregated for 
internal or external reporting. This results 
in slower organizational preparedness to 
manage water risks at the facility level 
and/or within the supply chain. 
?
How does
water risk affect you
5

3
2
1
4
5
11
 WRI Aqueduct, http://insights.wri.org/aqueduct 
12
 GEMI, http://www.gemi.org/waterplanner/
13
 WBCSD Global Water Tool, http://www.wbcsd.org/work-program/
sector-projects/water/global-water-tool.aspx
14
 Ernst & Young, "Preparing for Water Scarcity,"
http://www.ey.com/Publication/vwLUAssets/Water_Point_of_view_
paper_for_design/$FILE/Water_Point_of_view_paper_for_design.pdf
15
 "The CEO Water Mandate," Corporate Water Disclosure Guidelines, 
http:// www.pacinst.org/reports/corporate_water_disclosure_guidelines/
full_report.pdf
16
 "CDP Water Disclosure 2012 Information Request,"
https://www.cdproject.net/CDP%20Questionaire%20Documents/CDP-
Water-Disclosure-2012-Information-Request.pdf
Ernst & Young recently hosted a roundtable led 
by the World Policy Institute, titled "Factoring 
in Water Risk: Disclosure and Sustainability in 
the Business Value Case." Key takeaways for 
companies include:
1. Make the business case to invest in water   
 management, although the consideration   
 around water is not the cost per volume   
 of water used but rather access to and  
 availability of fresh water
2. Think long term even if current g213 nancial  
 systems do not allow businesses to   
 easily develop  future contingency plans
3. Move beyond compliance-oriented   
 strategies on water management
4. Rigorously measure and manage   
 data specig213 c to water use, quality,   
 discharge in own facilities and across  
 the supply chain. 
6
Taking action: g212 ve steps to assess and mitigate 
the risks of water scarcity
There are important steps executives can take to mitigate 
the risk of disruptions to their business as a result of 
water scarcity or poor water quality, and beyond that, to 
better manage the water resources they use to promote 
the sustainability of their businesses in the long term.
Develop a corporate water policy: This should be 
an organization-wide, publicly available policy on 
water that sets out clear goals and guidelines for 
action.
Understand the current state of water risks at 
the watershed level: It is important to understand 
the risks relevant to specig213 c watersheds, categorize 
them and measure their potential impacts on 
operations. Methods of doing this include producing 
a competitive benchmark of both local and global 
efforts to mitigate similar risks. Watershed data 
is currently publicly available through tools such 
as the WRI’s Aqueduct Water Risk Analysis,
11
 the 
Global Environmental Management Initiative’s 
Collecting the Drops: A Water Sustainability 
Planner
12
 and the World Business Council on 
Sustainable Development’s Global Water Tool.
13
Understand the business’s water footprint, 
both locally and across the value chain: This is 
the best way to take a holistic view of water use 
and discharge impacting the company’s products 
or operations. A value-chain approach is key to 
understanding the geographies and commodities 
that account for a large percentage of a business’s 
total water use; it can help companies develop 
a focused strategy to mitigate risks. For more 
information, please see Ernst & Young’s recent 
report Preparing for water scarcity: raising business 
awareness on water issues,
14
 which discusses the 
tools available for water footprinting.
Engage internally at the facility or corporate level 
and externally with local stakeholders to evaluate 
the risks and impacts. Applying innovative 
technologies and educating one's own facilities are 
key to realizing efg213 ciencies and mitigating risks. 
Externally, local communities, farmers, industries 
and river basin commissions should be consulted 
on issues such as drinking-water needs, quantity 
and quality of available water supply, water 
infrastructure, and wastewater management. 
Report externally and seek independent assurance: 
Transparent reporting enhances a business’s ability 
to understand water risks, impacts and opportunities. 
The UN Global Compact’s CEO Water Mandate 
released an exposure draft of a g213 rst-ever common 
approach to corporate water disclosure
15
 in August 
2012. This is available in conjunction with the Carbon 
Disclosure Project’s Water Disclosure survey,
16
 which 
helps companies collect a broad base of information 
related to water performance at the corporate level 
and in the supply chain. In addition, companies should 
consider independent third-party assurance of water 
data in order to provide stakeholders with accurate 
and complete water disclosures.

?
What's the bottom line
7
A business-as-usual outlook with an eye toward 
capturing quarterly returns is no longer an 
option, given that several supply-constrained 
watersheds around the world are already 
experiencing water shortages. More holistic 
water management approaches are necessary.
Businesses, local governments and communities 
should work together to understand the 
competing uses of local water resources; to 
evaluate local needs, risks and impacts; and to 
apply tailored technological innovations, such as 
membrane technology for wastewater recycling. 
But risk management alone should not be the 
ultimate goal of these efforts — with water 
stewardship, there are longer-term solutions.

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