Sure, your favorite cotton T-shirt is comfortable, but at what cost?
2,720 liters of water, to be exact.
Water is among our planet’s most valuable resources, but industry – from food production to mining, apparel manufacturing to high tech – has chronically undervalued and undermanaged global freshwater.
Industry is collectively the single largest user and influencer of these resources, and its insufficient management has led to severe and systemic impacts that expose companies and their investors to far-reaching financial risks.
While no sector is blameless, certain players have more impact than others. The textile, apparel, and luxury goods sectors contribute to water scarcity, largely due to water-intensive cotton and leather production and have significant impact on water pollution through wastewater discharge from operations and runoff from their agricultural supply chain. Metals and mining contribute significantly to groundwater depletion and metal pollution, but the information technology sector also plays a significant role due to production of semiconductors, circuit boards and batteries and the operation of data centers.
A new report from Ceres not only explores the industries that stand out as the biggest contributors to these threats, but also explores broad shortcomings in how water is governed globally, including lax regulations, systemic undervaluation, water management gaps, and social responsibility gaps. It reveals most of the world’s largest institutional investors are unaware of the widespread existing and emerging impacts of corporate practices on freshwater.
The research underscores startling facts about industry and global freshwater availability and quality:
- By 2050, 42% to 79% of watersheds that pump groundwater globally could pass ecological tipping points without better management.
- By 2050, there could be more plastic (by weight) than fish in the ocean.
- Beef is the thirstiest food product by far. A single kilogram of beef takes an estimated 15,000 liters of water to produce.
- Organic cotton, which is primarily grown on small farms, uses 91% less water than non-organic cotton.
- Oil sand extraction is especially water intensive because the oil must be separated from sand. The industry accounts for nearly 10% of Canada’s overall water use based on multi-year averages.
- In most parts of the world, especially in Asia, Africa, and developing countries, chemicals, heavy metals, and micro-plastics are discharged untreated into rivers, streams, and coastal estuaries.
- Chile’s mining industry withdraws an average of 70 million cubic meters of freshwater – equivalent to Paris’ drinking water use for four months – to produce one metric ton of copper.
- Barely one-third (37%) of the world’s 246 longest rivers are still free-flowing due to dams and other water diversion projects, and many more will be fragmented if nearly 4,000 planned hydroelectric dams are built, most of them in Asia and Africa.
- Eutrophication, a toxic form of water pollution caused by excessive nutrient loading from agriculture and other human activity, affects 54% of the lakes and reservoirs in Asia, 53% in Europe, and 48% in North America. A eutrophic ‘dead’ zone in the Gulf of Mexico last summer covered an area the size of Connecticut.
- Even as pharmaceutical drugs are proliferating and posing higher public health risks in water supplies globally, most of them – over 75% – are not being measured in water resources.
Despite clear evidence, too few institutional investors have treated water as seriously as they have climate change. In reality, the two are closely interlinked, with climate change acting as a threat multiplier that directly impacts the global water cycle and distribution and availability of freshwater around the world. A Barclays’ research note warned that the consumer staples sector alone, which includes food and beverage production, is facing a potential $200 billion impact from water scarcity risks – roughly three times higher than carbon-related risks. Stronger water management measures will be far less costly than ‘business as usual’ approaches that have been broadly insufficient so far.
Investors who wish to be more water-conscious can strategically focus their engagement with companies in their portfolios that face water risk by taking the following core actions:
- Water quantity: Ensure practices do not negatively impact water availability
- Water quality: Ensure corporate activities do not pollute local and regional water bodies
- Ecosystem protection: Ensure business activities do not degrade natural ecosystems; help restore ecosystems the business depends on
- Access to water and sanitation: Collaborate on efforts to support clean water access and sanitation in the communities where the business operates and the ones it impacts
- Business integration: Integrate water-related risks and opportunities into corporate governance and decision-making at all levels across the organization; disclose comprehensive water use across the corporate supply chain
- Public policy engagement and water governance: Proactively support public policies and water governance structures that further sustainable water resource management
- Multi-stakeholder collaboration: Build, engage, and invest in industry and cross-industry efforts that challenge traditional business practices and encourage both research and system-level changes
With science-based guidance in hand, investors now have the tools they need to help industry efficiently and effectively address water quality and quantity issues. The Ceres Valuing Water Finance initiative, which will launch later this spring, will further amplify these findings among large institutional investors and empower them to advocate for change, charting a path to a better future.