Running dry

One of the biggest reasons given for overuse of water is a false valuation often put on the resource, which is subsidized in most parts of the world – even where it is considered scarce. “More than a quarter of the profits of the world’s biggest companies would be wiped out if water was priced to reflect its availability,” says Dr. Richard Mattison, Chief Executive of Trucost, an environmental research group.

This concern is amplified in places where demand for water is at its highest and availability is low. For example, the “Dry 11” of the 31 regions of mainland China create 52% of the country’s industrial output and 40% of its agricultural products, according to Trucost.

As a result, some companies are exploring the value of water beyond the purchase or procurement price, in recognition that water may at some point be less readily available. A realistic option might be to change the way it is priced. “In so-called mature water economies, where the scarcity value of water has increased, governments impose demand-side management instruments, such as water prices,” says Claudia Ringler, Deputy Division Director at the Environment and Production Technology Division of the International Food Policy Research Institute.

“Markets in tradable water rights have been seen in Australia, California and Chile, but they remain rare.”

As more countries adopt similar models, costs are only going to increase – which presents another risk for businesses that rely on water. However, tools such as an integrated report could mitigate these risks and help create value for a company by forcing them to consider the future implications of water shortages and factor them into decision-making immediately.

That’s one more reason for companies to take water risks very seriously indeed.

Article from: Reporting

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