William Sarni, Deloitte Consulting LLP [email protected]

HOW TO RESPOND TO INCREASING CORPORATE WATER RISKS

Finding opportunities in water risk

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Copyright © 2011 Deloitte Development LLC. All rights reserved.

Paradigm shift in how we value and use water Current paradigm

New paradigm

Source

Loss

Use

Source

Source

Source

Source

Loss

Treatment Re-use Treatment

Adapted from Lux Research Water Intelligence 2008

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The move from water management to stewardship Water Stewardship

Water Management

Focused on long-term availability for all stakeholders, ensuring consistent, quality supply for all uses over time

Focused on immediate and direct costs of scarcity and efficient use of the resource

Direct Operations

Supply Chain Business Partners

 Consistent, high-quality supply can no longer be assumed given increasing drought and flooding

 Complex supply chains cross watersheds and contain hidden water-related business risks

 Managing water as an input must extend beyond the unit cost of water to include business continuity, brand value, and regulatory considerations

 Hidden risks in the supply chain magnify exposure to water risk  Effectively managing water-related risk through the value chain paves the way for innovation and new business opportunities

Watershed Stakeholders  Effective long-term water stewardship occurs on the scale of the local watershed in partnership with local communities and NGOs  Disclosure of water-related efforts allows companies to gain trust, build relationships, and mitigate tensions  Watershed-level stewardship has strategic value for global business

Companies are at different levels of maturity with respect to addressing water scarcity; stewardship is the most strategic, long-term approach. -4-

Copyright © 2011 Deloitte Development LLC. All rights reserved.

Water stewardship strategy framework  Companies should: ‒ Incorporate water risk into ‘traditional’ corporate risk management processes ‒ Quantify the “real” value of water to the business ‒ Understand the energy-water nexus and its potential business implications ‒ Increase focus on engagement and innovation ‒ Look for opportunities in the overlaps ‒ Make a public commitment to water stewardship

‒ Practice “radical transparency” about water

 Customers often have similar goals – open collaboration for mutual benefit is a key trend

Source: Sarni, William, “Getting Ahead of the ‘Ripple Effect:’ A framework for water stewardship strategy.” Deloitte Review, Issue 12, 2013.

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Water stewardship strategy framework – key components A step forward in any category improves overall water stewardship performance.

REPORTING & DISCLOSURE • Disclose water-related information to stakeholders • Publish water-related analysis in financial reports • Audit/assure water-related data • Be transparent in reporting

Water Stewardship • • • • •

GOVERNANCE Oversee water policy, strategy, or management plan at board level Develop concrete water-related goals Innovate and invest in water technology Manage brand and reputational risks Engage on water pricing and public policy issues

COLLECTIVE ACTION • Identify stakeholders and concerns (employees, suppliers, local communities, governments and regulators, NGOs, other water users (industry or company-level), customers, investors) • Engage internal and external stakeholders on water-related issues

ACCOUNTING & FOOTPRINTING • Direct operations: Measure water withdrawals, recycling/reuse, wastewater discharges (quantity and quality) • Indirect operations: Measure supplier water use and discharges (quantity and quality) • Measure lifecycle water footprint of products EVALUATE BUSINESS RISKS & OPPORTUNITIES • Evaluate physical/operational, regulatory, and reputational waterrelated risks (direct and indirect operations) • Prioritize risks and develop a mitigation plan • Evaluate and implement waterrelated opportunities (direct and indirect operations) – products, services, efficiency, etc.

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water footprint is defined as the total volume of freshwater used to produce goods and services across both direct and indirect operations. It is a geographically explicit indicator, showing not only water volumes consumed and/or polluted per unit of time, but also locations.

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Water stewardship – phases and programs Key phases

Key programs

Ongoing process

Footprint/ stakeholders

Risks/ opportunities

Execution/ engagement

Inventory of current programs and projects

Map risks — Direct and indirect

Reduce footprint and offset

Water footprint — Enterprise wide and supply chain

Alignment with other resource issues

Water innovation and technology investment

Water footprint — Products

Map water opportunities and value

Brand and reputation management

Stakeholder mapping

Prioritize issues and establish goals

Reporting, disclosure, governance and policy engagement

Stakeholder/community/employee engagement From W. Sarni 2011 -7-

Copyright © 2011 Deloitte Development LLC. All rights reserved.

A water stewardship strategy - mitigate risk and identify opportunities Business Continuity

Innovation

Brand Value

• A comprehensive view • Historically, water • Sound water of corporate water use management practices stewardship can align can have significant have focused on corporate and financial impact (e.g., securing water environmental goals reduced potential for supplies, and • Avoiding negative supply disruptions, managing waste consumer perceptions capital costs to secure, discharges can lead to increased process, and • Identifying reuse and revenues discharge water, and recycling opportunities compliance issues) can reduce costs and • These benefits can be diversify supply, leveraged in the supply mitigating risk in direct chain and in direct operations operations

License to Operate

• Water is a local issue and misuse of water resources can lead to regulatory or consumer conflict • Considering operational and local community needs can maintain this license in the supply chain and direct operations, and support business continuity and brand value

Risk Mitigated Operational



Regulatory Reputational

 

 



  

Responding to water-related risks can mitigate risk and identify opportunities across a company’s value chain 8

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Reporting and transparency – CDP Water Program “Water…is fast becoming one of the planet’s most stressed resources. Access to clean water has emerged as a critical issue affecting economic activity, development, and business around the world.” -IBM

The CDP Water Disclosure program was launched in 2010 and is backed by 470 institutional investors representing over US$50 trillion in assets

“To grow our business sustainably we need to reduce the total amount of water used across our value chain, especially in regions where water availability is already under pressure from climate change.” -Unilever “Typically water is a get into business and/or stay in business requirement. The mining industry is dependent on water, and water is a finite resource. With water scarcity scenarios a looming threat, the identified opportunities will enable Anglo Platinum to continue with business - usual and enable long term expansion plans.” -Anglo Platinum

Source: 2012 CDP Water Disclosure Report

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There is no “one size fits all” list of actions

 Water efficiency in operations

 Build/obtain new sources of supply

 Water efficiency in supply chain (precision agriculture for example)

 Secure long term supply agreements  Make strategic water efficiency investments

 Water reuse and recycling in supply chain and operations

 Develop employee engagement programs  Integrate water risk into enterprise risk considerations and procedures

 Product innovation – for example, no water use personal care products

 Develop incentives for water efficiency internally

 Technology innovation

 Develop incentives for water efficiency among suppliers

 Pricing – shadow price of water for internal decision making

 Engage Water Action Hub in specific geographies

 Watershed - Stakeholder engagement – leveraging the Water Action Hub

 Build industry consortia in specific geographies

- Conservation – payment for ecosystem services for example

 Perform stakeholder surveys to identify and manage reputational risk due to water issues

- Public policy engagement

 Improve corporate reporting processes and data management

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