Physical risk refers to the direct limitation of business activities, supply of raw materials, and product use. Declines or disruptions in water supply can affect production, irrigation, material processing, cooling, and cleaning. Reputational Risk deals with competition for water supply (especially in water-strained areas), and can lead to community or local unrest regarding water withdrawal.
Regulatory Risk is directly caused by a combination of water scarcity and concern in local communities, and often forces local authorities to take action by allocating water, increasing prices, setting permitting standards, and developing rigorous wastewater quality standards.
The CDP Water Disclosure Global Report 2011 highlights some key statistics regarding water and the Global 500:
- 59% of respondents cited water as a substantial risk to the company, while water-related risk has already impacted
- 63% of respondents identified opportunities including cost reductions and increased water efficiency, revenue from new water-related products or services, and improved brand value.
- Less than 50% of respondents identified water policy as a board level issue, indicating that water is receiving less attention than climate change and energy conservation.
Large companies throughout the world are aware of various water related risks, and recognize that there is opportunity for improvement, but water scarcity is still not receiving the attention it deserves. Corporate water footprinting can be an appropriate step in identifying these risks and opportunities to mitigate potential problems surrounding this limited resource.