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How business is threatened by water scarcity

A new report from WWF and Lloyd’s, the world’s leading specialist insurance market, highlights the fact that global water shortages are an increasing threat to business, particularly as populations grow and climate change takes hold.

As well as being our most important human resource, water is involved at some stage in the production of all the world’s goods.

But there is a finite amount of freshwater on our planet – only 3% of the total water in the world is freshwater and less than 1% is readily accessible for people.

The new report released by Lloyd’s 360 Risk Insight and WWF,
Global water scarcity: risks and challenges for business, says that businesses will have to address and manage the risk of water scarcity in the future.

Even companies that hold a water licence – which entitles them to use a set amount of water – may face risks as governments start to re-allocate water to priority users.

And it’s not just relevant to companies based in drought-prone regions. The risks spread through supply chains, affecting business partners and importers.

The risk to reputations is very real too, as companies could be accused of over-using scarce water at the expense of the environment or householders.

Lloyd’s CEO Richard Ward says managing water is no longer simply a corporate social responsibility matter – it’s now a core business issue.

“Water scarcity is already a reality for some businesses, and as this trend increases all risk managers will need to consider their organisation’s exposure.

“The simplest risk management response is to reduce your own water use, or that of your suppliers. But businesses cannot manage this risk alone, and will need to work with the wider community to improve water management and protect this critical resource.”

Getting water management right
The report identifies two strategies for companies to manage water risk.

1. The three Ms - producers should:

  • measure their water risk
  • mitigate it
  • market themselves as leaders in water management.

2. The three Is – businesses in the service sector can:

  • consider water risks when identifying suppliers
  • influence suppliers to mitigate water use or meet set standards
  • consider water risks when making investment decisions.

A previous Lloyd’s 360 Risk Insight report found that water also presents a security risk to business in some parts of the world, where it could become a source of conflict - such as India and Pakistan competing over diminishing water supplies from the Indus river basin.

WWF’s head of freshwater programmes, Dr David Tickner, says: “Getting water management right underpins our ability to tackle many of the great challenges of the 21st century: economic growth, food security, energy security, reducing poverty and adapting to a changing climate. We believe businesses should be as much a part of the solution as governments and NGOs.”

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