Over 50% of companies' water risk management strategies already include a beyond-the-fence approach

Becoming a corporate water steward requires a shift in focus when addressing water risks - moving beyond improvements in direct operations to engaging in the watershed they operate in. For instance, often companies cannot address water availability risks from depleting groundwater resources through more efficient internal processes alone. Water challenges are shared. Therefore, moving beyond the fence-line of one's own operations is key to improve water conditions and efficiently reduce or avoid business impacts for the company. Effective external action with partners can include engaging with other water users, setting abstraction standards or collectively improving recharge rates through increasing tree cover with native species.

To understand the state of play in how companies are managing water-related business risks, we analysed 414 facility-level response strategies reported by 78 companies in the food, beverage, construction materials, electric utilities, chemical and metals and mining industries in their CDP disclosures in 2016 to assess:

• To what extent companies apply beyond-the-fence (BTF) and inside-the-fence (ITF) actions
• The most common measures they take in each industry in both ITF and BTF categories
• The median costs of different response categories

For a comparison of the five industries, please contact us for access to the full report.

Some of the key insights when comparing the risk responses of the Mining, Food, and Beverage industries over 2015 and 2016 include:

• Between 85 and 89% of the reporting companies are exposed to water risks with substantive impact on their business. Businesses mainly face physical risks due to too little, too much, or poor quality water. Moreover, they face external pressure, mainly from communities and regulators, as reflected in the intensity of external stakeholder engagement: in more than 80% of the BTF approaches, companies focus on engaging with other stakeholders as the graph shows. This emphasises the importance of both regulatory and reputational risks.
• Companies are shifting from focusing solely on their own water efficiency and compliance to beyond-the-fence water risk management. In 2015-16, companies were already applying a beyond-the fence (BTF) component in 54% of all their water risk mitigation strategies, while in 46% facility-level water risks, they focussed on internal actions only. First-and foremost, this 'beyond-the-fence (BTF)' approach requires engaging with other stakeholders and watershed information gathering. Both practices occurred in over 80% and 40% of all BTF approaches.
• Moreover, companies are beginning to focus their BTF interventions more on action and infrastructure investments. In 2016, every second BTF risk response contained an investment in infrastructure, up from 35% in 2015. As the right of the figure shows, in every fifth response companies invest in natural water infrastructure like forests and wetlands for high quality and abundant water supply or flood control. Moreover, companies have started to invest in grey infrastructure which include pipes that combine catchments or recharge water in wetlands, investments in sewage or other municipal infrastructure, reservoirs or dams. Increased wastewater reuse includes both a company's treated discharge water, which is e.g. used for irrigation by farmers, and also companies using wastewater effluent from a sewage treatment plant for their own operations. Long story short, companies increasingly walk the talk. This is also reflected in the increased investment in BTF-only responses: four times higher than in the previous year.
• Setting targets related to watershed contexts is a highly recommended corporate water stewardship practice but not yet popular according to our data. Just 5% of all BTF risk responses include this action. It requires companies to develop a detailed understanding of resources and issues at the watershed level. This data can serve as a baseline against which to set targets and track the progress of BTF actions to demonstrate tangible results.
• The beverage, food, and mining industries are leading the way in beyond-the-fence engagement and action. They are over proportionally represented within the CDP Water A List, further indicating leadership behaviour. Currently, beverage and food companies are also firsts in class in applying the Alliance for Water Stewardship Standard, a robust risk response framework for site to catchment responses in addressing local water risks.

Get in touch to learn more about how particular industries are responding to water risks including, what actions they take, and the groups of stakeholders different industries engage with.

Contact our team to discuss how you can assess and address your water risks in a collective action approach

This piece was co-authored by Julian Kölbel.

As the CDP's official water scoring partner since 2015, South Pole has evaluated the corporate water management practices of over 500 companies in over 50 industries and we have successfully supported companies in developing holistic corporate water stewardship strategies.