Water valuation and corporate responsibility

Anand Chandrasekhar, Geneva,19 November 2013

violaine-bergerViolaine Berger is the Manager (Ecosystems, Water, Agribusiness) at the World Business Council for Sustainable Development (WBCSD) based in Geneva, Switzerland.  Anand  Chandrasekhar spoke with her on the eve of the World Forum on Natural Capital, Violaine advocates that companies should take a more holistic “watershed” approach to water that also recognizes the water needs of the environment.

Anand Chandrasekhar: For a long time industry has treated the impact of their water footprint as an externality. Is it because businesses are conditioned to capturing the price of services but are not so good at understanding the wider values?

Violaine Berger: A lot of the services we get from nature are invisible in our current economic model. The value of biodiversity is for example being ignored by businesses and governments – it is considered as an externality. The case is somehow specific when it comes to water. Water is a natural resource that often has a market price, and a majority of companies pay for using it. However, the price of water does not necessarily reflect its actual value, which explains why it is so often wasted or polluted. Indeed, the price of water is rarely based on the full cost of supplying it or the on the full amount people would be willing to pay for it, as it is often subsidized. As water demand continues to stress our water supply, business will increasingly need to look at the real value of water to their business – and not at the price itself, as it is not reflecting the actual value they are getting from the resource. Water valuation can in this respect inform business decision-making, and limit wasteful practices.

Anand Chandrasekhar: Water demand from the manufacturing sector is expected to increase by 400 percent and electricity production sector by 140 percent by 2050. Are businesses aware that costs will only get bigger the longer business takes to account for the real value of the water it is using?

Violaine Berger: An increasing number of companies understand that water is a finite resource, and that they may have issues in getting water in adequate quantity and quality to ensure the functioning of their operations. As a consequence, they are looking into how to better manage the resource. Our WBCSD Water Leadership Group gathers 28 multinationals representing 11 industrial sectors – a majority of water users. Additionally, a wider group of WBCSD member companies (around 100 of them) are closely following the work we are doing. They are all interested in managing water in a more sustainable way.

Anand Chandrasekhar: Companies have moved from “do less harm” to “do more good”. Has this change in philosophy helped WBCSD build the business case for water valuation?

Violaine Berger: It has, undoubtedly. Water valuation is one of the several tools companies can use to become better water stewards. However, companies should keep in mind that valuation is a mean and not an end in itself. Companies should also adopt a more holistic “watershed approach,” which takes into consideration upstream and downstream interactions, and direct and indirect impacts, and recognizes the needs of the environment. Local participation in the collective management of water will be key to ensuring long-term access to the resource in the context of competing demands.

Anand Chandrasekhar: WBCSD released the Business Guide to Water Valuation at World Water Week in Stockholm this September. Was it designed to target companies that are already convinced of the need for water valuation and want to take the next step?

Violaine Berger: We started our journey towards improved understanding of the value of water with a first publication, Water valuation: Building the business case, aiming to demonstrate the business case for companies to engage in water valuation. It was illustrated by 21 case studies from companies that had valued water either in itself, or as part of a broader environmental valuation study. It was the first step towards the integration of true water values and true water costs into decision-making.

The Business Guide to Water Valuation is the next milestone of this project. It provides business-specific guidance on the main concepts and techniques associated with water valuation. The intention is to arm business managers with the knowledge and critical eye needed to work with valuation specialists. This will help managers commission, manage and review water valuation studies and make the best use of the findings.

Anand Chandrasekhar: You were also a part of the panel discussion at the TEEB for Water and Wetlands Session at World Water Week. Did you get a sense that decision-makers appreciate the value of water to the economy and do you think that this value should be incorporated into national accounting mechanisms?

Violaine Berger: Governments are increasingly looking at the economics of water policy in order to better manage the resource. In its publication A Framework for Financing Water Resources Management , the OECD is for example exploring the role of economic instruments to “curb water demand and the need for additional infrastructures; promote low cost options, including green infrastructures such as wetlands and floodplains; generate revenues for water policies and water-related services; and allocate water where it is most needed”. This will become an increasing trends in the coming years, and business also needs to be part of it, as it needs to anticipate regulation changes and the related risks to its operations.

Anand Chandrasekhar: Your guide showcases some interesting case studies where companies have experimented with unique solutions to water-related problems. Can business case studies like this convince governments to mainstream and upscale natural water infrastructure solutions?

Violaine Berger: Case studies are useful to showcase alternative ways of managing the resource. In particular, valuation studies demonstrating the value of investing in natural infrastructure instead of grey infrastructures are very useful communications tools to convince governments and business alike that natural infrastructures can, in many cases, provide the same services and benefits as man-made infrastructure and at a lower cost. A well-functioning ecosystem can deliver the equivalent water availability and filtration, flood control and shoreline protection as a major physical infrastructure project. Indeed, investing in ecosystems is often cost-competitive with man-made infrastructure investments for equivalent services.

Anand Chandrasekhar: Some companies have even attempted to use valuation studies to convince other stakeholders to optimise water use. For example, your guide highlights EDF Energy’s water management plan that recommends restricting agricultural water removal. Is this the “breaking the silos” thinking that you’ve been campaigning for?

Violaine Berger: The EDF case study is a great example of how different water users – business, civil society, farmers – that are competing for water use can find a common ground to transform this competing uses into a win-win situation. Water valuation helped EDF manage the allocation of regional water resources and optimize water use. It helped improve operations and management (through option appraisal and water use efficiency); enhance overall environmental and social considerations; and assess how much EDF should compensate the farmers for reducing their water consumption.  The result was that not only did EDF and the farmers gain from increased water use efficiency, but the third winner was the environment (i.e. ecosystems), as around 84% of the water savings are used for ecological purposes. Over the next 20 years, a broader focus on water management beyond the “fence-line” – outside the company, at a watershed level – will be needed for businesses to ensure access to one of the world’s most finite resource, water.

Anand Chandrasekhar: You recommend that company managers should look at whole river catchments and consider a time scale of 25 years for a scoping study. Given that company reporting requirements are moving towards integrated reporting, can such a scoping study be the cornerstone of an integrated reporting strategy?

Violaine Berger: The scoping includes looking at how supply and demand will evolve over time. An analysis on a short (e.g. 2-3 years) or too long  (e.g. 50 years) time frame wouldn’t be relevant, which is why the suggestion is to look at water possible trends for the next 25 years. This indeed links to water risks analysis and could be included into a company sustainability or financial reporting.

Anand Chandrasekhar: Transparency regarding the environment footprint of companies is a key element in fixing accountability and building trust. Do you think that transparency initiatives like the Water Disclosure Project will also promote the recognition of water-related values in the business sector?

Violaine Berger: Yes, undoubtedly. Increased transparency about how corporations are responding to water risks will promote the recognition of water-related values in the private sector.

Anand Chandrasekhar: WBCSD helps build capacity for corporate ecosystem valuation through free tools such as Business Ecosystems Training and the Global Water Tool. What has the uptake been so far?

Violaine Berger: The Global Water Tool (GWT) is the first step for companies to understand their water use and assess risks relative to their global operations and supply chains. More than 300 corporations have used the tool which has been regularly updated with improved datasets and functionalities as well as customized to various industrial sectors. An increasing number of companies and organizations are also using Business Ecosystems Training, a capacity building program that aims to equip managers with the skill they need to better understand, but also measure, manage and mitigate their ecosystems impacts and dependencies. It is for example being used by the International Union for the Conservation of Nature in The Netherlands, to train companies on biodiversity and ecosystems. A whole section of the BET program (Module 3) is dedicated to ecosystem valuation, and introduces the basic concepts around Total Economic Value.

Anand Chandrasekhar: WBCSD President, Peter Bakker, summed up that valuation is not about turning business into an arm of the United Nations but responding to regulatory, operational and reputation challenges in a water-stressed environment. How well placed is the business sector to face future challenges?

Violaine Berger: It is difficult to generalize what is currently happening. Some companies are getting it, and are managing their water not only inside their fence-line, but also beyond, through watershed-based collaboration that effectively engages other stakeholders. Some are just at the start of the journey, realizing that they first need to reduce their reliance to water in their operations.

anand About the Author

Anand Chandrasekhar, is based in Switzerland and has a Masters in Conservation Biology from the University of Kent, UK and a Bachelors in Forestry from the Tamil Nadu Agricultural University, India. His experience extends to a wide range of environment issues including species conservation, environmental law and policy, natural resources governance, climate change and carbon markets. He now specializes in science and environment communications and enjoys developing thought-provoking content and challenging conventional thinking.

Disclaimer:

The views expressed in this blog are purely those of the authors and do not necessarily reflect the views of TEEB and should not in any circumstances be regarded as stating an official position of TEEB.

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