The economic slump still with us after several punishing
years is largely rooted in living beyond our means too
much spending and not enough money in the bank to cover
peoples expectations for the future.
This disconnect between actual and expected means is at the
root of much of the financial markets distress. But it is
also threatening another resource that modern society depends
heavily upon: fresh water. If investors and companies do not
plan for this already unfolding global threat, they are as
vulnerable as overextended banks were when the housing bubble
We live in a thirsty world. Climate change, population
growth and pollution make quenching this thirst dramatically
more difficult. Our over-leveraged global water position is
fundamentally unsustainable, and the business community is
already feeling the pain. Consider the following facts:
· In a recent survey backed by 354 institutional
investors, 59 percent of the 100-plus largest global
corporations report exposure to water-related risks, with over
a third already suffering financial impacts.
· Ongoing drought in Texas has devastated cattle and
cotton production and threatened power blackouts. The U.S.
Department of Commerce reports drought-related losses in Texas
and six neighboring states totaling $10 billion.
· New Chinese government figures show that 52 percent
of the countrys industrial output over $4.5
trillion in value comes from regions facing serious
water scarcity. Global banker HSBC warns that businesses
operating in 14 water-scarce Chinese provinces need to plan for
significant resource constraints.
· A recent study led by McKinsey and the World Bank
projects that by 2030 world water demand will outpace supply by
40 percent under a business-as-usual scenario.
Business as usual is already changing in significant ways
for companies like Coca-Cola, which knows full well that a lack
of sustainable water supplies is the ultimate show-stopper.
With some 900 bottling facilities worldwide, Coca-Cola and its
bottling partners depended on 295 billion liters of water in
2010 to drive $100 billion in revenues.
To put that in perspective, its less than half of what
the city of Atlanta used last year. Yet beverage companies are
a relatively small example of water-dependent industries. From
farms to power plants, mining to microprocessors, water is
But many in the private sector continue valuing water under
stale assumptions: Its seen as cheap, stable, and
uncontested, when increasingly its none of those.
Lets start with cheap. We often fail to appreciate
waters value until its gone, or polluted. Why? In
much of the U.S. and the world, the water bill is a tiny
portion of a companys total costs. If companies and their
investors use only that price signal, they are missing the
hidden risks of business interruption from a lack of clean
water and the increased capital costs of replacing it.
And stable? Unfortunately, extreme weather trends are taking
the water picture in highly unpredictable directions. With
truly global exposure, Coca-Cola is in some ways the canary in
the coal mine here. From Texas to Thailand, Coca-Colas
plants are contending with hundred-year droughts
and floods with growing frequency.
In addition, demographic trends and economic growth mean
water rights are increasingly contested. Coca-Cola and others
in the industry have learned this the hard way in countries
like India, where beverage plants are sometimes seen as
competing with other, often much larger, water users such as
So the paradigm of cheap, stable and uncontested, and the
actions it informs, must change. The business community is
starting to realize this, with companies ranging from Ford
Motor to Levi Strauss to IBM seeing the need and seizing the
opportunity to act. Institutional investors from the Norwegian
sovereign wealth fund to the California State Teachers
Retirement System are also waking up to the issue, asking
companies in their investment portfolios to better manage water
A cutting-edge new tool, the Aqua Gauge, will help these
investors, and companies as well, better manage water risks.
Developed in collaboration with the World Business Council, the
IRRC Institute, and investors managing over $2 trillion in
assets, the comprehensive evaluation tool outlines detailed
steps for effective water risk management. Its backed by
some of the worlds largest institutional investors, plus
many Fortune 500 companies, that see it as a key
risk-management tool going forward.
The Aqua Gauge emphasizes that water resources are valuable,
increasingly dynamic, and must be managed and protected through
stakeholder collaboration. Investors can use the tool to
evaluate water risks in their portfolios, and companies can use
it as a roadmap to navigating a water-constrained world.
For Coca-Cola, that roadmap entails meeting its goal by 2020
to safely return to nature and communities an amount of water
equivalent to what it uses in all its beverages and their
Ultimately, water is a common good in whose management
governments play a significant role. With climate change
driving much of the water crisis, its imperative that
governments move the ball forward on addressing the warming of
our planet, and meaningfully.
The views expressed in this article are those of the
authors. Beatriz Perez is Chief Sustainability Officer of The
Coca-Cola Company; and Mindy S. Lubber is President of Ceres, a
Boston-based coalition of investors, environmental
organizations and other public interest groups working with
companies to address sustainability challenges such as climate
change and water scarcity. For more information about the Aqua