Published Editorial

Conquering the Waterloo

July 2016

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Sanjesh Thakur
Partner – Advisory, EY India

To multiply efforts, a consortium of companies in an industrial region can pool a portion of their CSR funds to undertake large projects that can enhance supply security and also provide clean drinking water to the local population.

While the rapid success of internet startups has dominated news space, the unglamorous water crisis with estimated potential to impact GDP up to 6 percent by 2050 as predicted by the World Bank recently is clamouring for serious attention. While the immediate focus of most C-suite executives is on digital transformation, water scarcity that may present existential threat to industry in certain regions is yet to appear on the core risk agenda of most companies. With 10 states contributing to around 65 percent of India’s GDP declared drought affected, it’s high time companies realign their risk management priorities to face the inevitable water stress and consequential operations disruption.

With human life and commercial interests increasingly coming in direct conflict over ownership of water, predicting the loser is easy, given that water is a charged political subject, commercial impact notwithstanding. Case in point being the shifting of this year’s IPL from drought-affected Maharashtra, resulting in loss of revenues of about Rs 100 crore. Consumer and industrial sectors such as alcohol, beverage, distilleries, etc, are facing quota restriction or water rationing in some states, leading to significant reduction in production output. In the past, Pepsi and Coca-Cola had to shut down plants due to water conflict with the local population.

According to some estimates, industrial usage accounts for 7-13 percent of total freshwater extraction at present. This is likely to increase exponentially given the double digit growth ambition, rapid industrialisation and urbanisation envisaged by the government and will further pressurise the rapidly depleting supply. It is predicted that per capita availability of water will drop by 40-50 percent by 2050 and may force industrial units in certain regions to shut down or shift base to another area.

Unlike developed nations, water in India is highly subsidised and does not have a significant impact on the balance sheets for most industries. The notion of water being a perennial commodity with negligible economic value has adversely impacted conservation efforts. This attitude needs to change and efforts are required from both consumers and regulators to achieve supply stability and security. While state efforts towards water reforms will take time to fructify, social and regulatory scrutiny will likely increase over water use and misuse by the industry. This may lead to stringent regulations and demand for accountability. Recent case of banning commercial diesel vehicles by the judiciary over concerns of increasing air pollution should be an indicator.

While industries in developed nations have taken serious efforts toward reducing their water footprint, driven largely by regulatory and cost concerns, companies in India largely view it from a Corporate Social Responsibility perspective. A paradigm shift in approach is needed and the water governance has to move from ‘Social to Survival’. Companies should use an integrated 4R approach of ‘Respect, Recycle, Reduce, Refine’ to tackle this problem at all three operational gateways – inward (respect supply), in-house (reduce usage), and exit (refine and recycle discharge) to reap the triple benefits across social, economic and environmental fronts.

Our experience of working with companies in their water management efforts is that to be successful, water conservation has to be directed from the top. A unified approach targeting both downstream and upstream channels to achieve ‘water neutrality’ is more effective than standalone initiatives. Boards should drive the water governance agenda, companies should commission ‘water risk assessment’ studies and map their ‘water footprints’ across the entire supply chain, employ technology to minimise leakages, contamination and incentivise conservations efforts. Annual water saving targets should be defined and water audits should become an agenda item for senior management and board committees. The objective should be to offset the stress created on local water supply and achieve neutrality. To multiply efforts, a consortium of companies in an industrial region can pool a portion of their CSR funds to undertake large projects that can enhance supply security and also provide clean drinking water to the local population.

Some Indian corporations from sectors as diverse as retail, textiles and automobiles, are undertaking conservation programmes to reduce their water imprints. On the upstream side, focus is on rain water harvesting and integrated watershed development to aid supply and efficient recharge of water table. On downstream side, efforts are on to shift from wet to relatively dry processes, increase in-process recycling and minimise wastewater discharge. Some corporate offices have switched from water to bio-cubes to create flush-less urinals in their premises, which as per estimates, leads to saving of approximately 100,000 litres of water per urinal per year. Technological solutions are increasingly becoming available to aid conservation efforts, however, right intent and guidance is the key to success.

Structured efforts should be directed to minimize supply constraint and maximize ROI per drop of water. It’s important to create a profitable, but more importantly, a sustainable organisation that is on the right side of human and commercial interests, otherwise the prophecy that ‘next war would be fought over water’ may actually become a reality.

Isn’t that a compelling reason for companies to become water neutral?