Water scarcity is set to be one of the defining challenges of the 21st century. Unlike fossil fuels, there are no substitutes for water. Yet, until recently, much of the analysis of the potential costs of climate change focused primarily on temperature rather than water-related impacts.
In the past five years that has changed. Since 2012, crisis in the water supply has been among business leaders' top three concerns in the World Economic Forum's annual risk rankings. Prior to that, it did not feature in the top 20.
As the Global Risks Report 2016 notes, challenges around water management are “already immense”. Some 2.7 billion people, 40 per cent of the world's population, suffer water shortages for at least a month each year. Meanwhile the Organisation for Economic Co-operation and Development (OECD) estimates that 4 billion people could be living in water-scarce areas by 2050. It predicts that, on current trends, water demand will exceed sustainable supply by 40 per cent by 2030.
Impact on economic growth
The World Bank has this year tried to isolate the role of water in a changing climate within its economic modelling. “Water is a vital factor of production, so diminishing water supplies can translate into slower growth that clouds economic prospects. Some regions could see their growth rates decline by as much as 6 per cent of GDP by 2050 as a result of water-related losses… sending them into sustained negative growth,” it warned in a May 2016 report.
As McKinsey, the consultancy, has said: “Water scarcity is no longer just a small, plant-level issue for companies but has become a strategic question for senior management.”
Taking action
Pirelli is one company that has been taking this reality on board and has cut its specific water withdrawal by 42 per cent in six years.
To comprehend the scale of Pirelli's recent water savings, imagine yourself at Niagara Falls. By 2015, the tyre company had reduced its withdrawal by some 30 million cubic metres compared with 2009 – the estimated amount of water that cascades over the celebrated falls every three-and-a-half hours.
The group is on track to reach its longer term goal of a 58 per cent reduction by 2020.
Changing behaviour
Pirelli's experience shows that curbing water usage does not necessarily have to involve expensive new technology. “People's behaviour is what really makes the difference,” says Gioacchino Verga, group environment officer at Pirelli. “You have to raise awareness starting from top management. You can have the best technology but if people are not able to use it you cannot get results.”
The starting point in any water reduction programme is measurement, which in turn enables monitoring, adds Matteo Magnaghi who leads on water in Pirelli's health, safety and environment department.
Among other things, Pirelli found that substantial improvements could be made through improved maintenance of its water networks. As Arup, the engineering consultancy, has identified, plugging leaks within an existing water supply system can address water scarcity 50 to 100 times more cost effectively than building a water treatment plant.
Importantly, Pirelli has learnt to “close the loop”.
“We discovered we were discharging water that could be reused in other parts of the plants,” says Magnaghi.
Environmental data is collected monthly and the group's 20 plants, all of which comply with international environmental management standard ISO 14001, are benchmarked against each other and encouraged to share best practice via specific knowledge networks.
Broad commitment to environmental goals
Because water is a relatively inexpensive resource, it is important to view water projects as part of a broader commitment to the environment; they do not always stack up if evaluated from a purely economic point of view, says Verga.
As noted by the UN Global Compact – the world's largest corporate sustainability initiative, of which Pirelli is a leading member – water-related risks are not only physical or regulatory: they increasingly impact on an organisation's reputation. With a push for far greater transparency and accountability over companies' water usage, reputational considerations will become ever more critical.
Take as an example the water programme of the influential, global environmental non-profit organisation CDP (formerly the Carbon Disclosure Project). It now has the backing of more than 600 institutional investors together managing $63 trillion (£43 trillion) in assets. Each year, it asks the world's largest listed companies how they are preparing for worsening water security. Last year 38 per cent, including Pirelli, responded .
But CDP's message, like Pirelli's, is that while water mismanagement can cause business and social failure, good water management can actually drive innovative, sustainable growth.
Good stewardship of water “reduces risk, enhances strategic preparedness and improves investor appeal”, notes CDP. “This year's report is a call to all companies to close the gap. To take ownership of the water impact of the businesses they run, and to take responsibility for water externalities, building greater business resilience.”
