Water Security, Water Funds and the Corporate Sector — an Inside Guide
This short document outlines why water security is a key challenge facing large corporate water users in the coming decades, how it will affect their business and ways that they can proactively engage in order to reduce risks.
The relevance of water security to the business sector
Each year the World Economic Forum releases a Global Risks Report, based on an exhaustive survey of over 1000 business leaders worldwide. For the third year in a row, environmental threats continue to dominate the risk landscape. In the 2020 report, the failure of climate-change mitigation and adaptation, extreme weather events and natural disasters were the top three risks identified. On top of this, biodiversity loss, man-made environmental disasters and the water crisis came in the top ten. Water crises have ranked as one of the top ﬁve risks to economies annually since 2012.
For businesses with high water dependency, such as food and beverage companies, the stakes are particularly high.
Consider the global beverage industry, which is expected to reach nearly $2 trillion in value by 2021. A 2017 study showed that if companies fully absorbed the full costs of water availability and water quality impairment, this could equate to an average decline in profits of 116% for food and beverage companies.
Worse still, according to the World Economic Forum, at the current rate with business-as-usual, there will be a 40% gap between global water supply and demand by 2030 (WEF, 2017).
What is water security and where is the challenge?
The Asian Development Bank (ADB, 2013) says that societies can enjoy water security when they successfully manage their water resources and services to satisfy household water and sanitation needs in all communities; support productive economies in agriculture, industry, and energy; develop vibrant, livable cities and towns; restore healthy rivers and ecosystems; and build resilient communities that can adapt to change. Yet there are many societies that fall short of this ideal — 25% of the world’s population now live in countries that face extremely high levels of baseline water stress (WRI, 2019).
Already, the World Business Council for Sustainable Development estimates that water shortages cost the global economy over US$323 billion annually. To put this into perspective, this is roughly double the value of the entire global wheat harvest (FAO, 2018).
To make the situation graver, higher water stress is predicted for our future. By 2030, the number of large cities (more than 3 million people) in the extremely high stress category — with repercussions for public health and social unrest— is expected to rise to 45 and include nearly 470 million people.
Arguably, the topic of water security is heavily connected to all six of the top environmental risks identified in the WEF’s 2019 Global Risks Report.
By improving water security, businesses can help address some of these key risks.
Water governance — a long-term challenge for business
“More than just a key resource for our business, water is a critical resource for the economic, social and environmental well-being of every community around the world. As the world’s leading brewer, we are committed to being a part of the solution to some of the growing water challenges in areas where we operate — but we know the scale of the global water challenge is bigger than any individual organization or sector, so engaging in collective action is a cornerstone of our approach.”
– Samantha Fahrbach, Global Director, Water & Sustainability Operations AB InBev
The good news is that the World Resources Institute report predicting an alarming rise in water stress, went on to suggest that efficient water policies could actually contribute to enhanced GDP growth by 2050 (WRI, 2019).
Good water governance is a term frequently used to capture these aspirations. Water governance refers to the political, social, economic and administrative systems in place that influence water’s use and management. Essentially, who gets what water, when and how, and who has the right to water and related services, and their benefits.
Unfortunately, strong water governance is often lacking.
With only 10% of global water use destined for municipal consumption (World Water Council, 2014), and the remainder used by agriculture and industry, weak water governance affects all areas of society.
The largest water users are agriculture and industry, where the private sector dominates. Clearly then, any efforts to address water security issues on a global scale will have to be multi-sector collaborations —and the private sector will need to be a key partner.
For quite some time now, multi-sector collaborations have been touted as a key response to weak water governance, The problem is that such collaborations are not only hard to create to begin with, but they are even harder to sustain effectively. One of the key issues is a geographical one — even a small municipality is likely to have a watershed that expands outside its boundaries, with many diverse actors playing a role in either protecting or damaging the available water resource. Another issue is that those that benefit most from improved water security are not always those in a position to take direct actions to safeguard it.
The existing poor state of water governance in many countries is a reflection of the complexity in addressing the problem.
Water funds — one mechanism via which businesses can engage
What is a Water Fund?
The concept of a Water Fund dates back 20 years, to the foundation of the first Water Fund in Quito, Ecuador. This was in turn inspired by the success of the City of New York in safeguarding its water resources (and averting the need to spend a billion dollars on a new water treatment plant) by investing upstream in its watershed.
The Water Fund model — spearheaded initially by the The Nature Conservancy, but now taken up by an increasing number of partners — looks to improve water governance by creating opportunities that benefit both nature and people.
Water Funds unite the public and private sectors and civil society around the common goal of securing water for communities by protecting natural water systems in a way that promotes sustainable economic development.
Water funds help to make sense of and manage the significant complexities associated with water risk and nature-based source water protection. With 41 Water Funds across the globe as of April 2020 — and more on the way — the model offers business a template for a collective effort that connects them with multiple groups to manage and finance improvements in water security.
As the above graphic suggests, Water Funds work with people living upstream to help them manage watersheds, improving the productivity and resilience of their lands. Water security is improved for downstream communities, cities and businesses — this supports social development and reduces economic risks. It also introduces a mechanism for the long-term financing of water security programmes.
Which for business means that, over time, the burden of investing in water security is shared with others.
How can Water Funds help business address water security and other issues?
For corporate water users the temptation to address water security unilaterally is strong. They can do this by ‘looking within their fence’ at ways to further improve water efficiency or by adjusting supply chains. At a certain point however, such efforts may be thwarted without collective action at a larger scale — for instance within the nearby water basins where local products are sourced or from which water is abstracted for on-site processing.
Unfortunately, in the past there have only been limited ways for corporate users to engage in multi-lateral action.
Moreover, the scale at which these larger engagements apply — for instance across an entire country — can be so large that the local benefits to corporates are questionable.
Fortunately, the Water Fund model allows companies to engage in collective action in such a way that local issues are addressed — and in doing so, pool resources together with other stakeholders.
Water Funds approaches thus lower the cost to each stakeholder, even as they expand the resources to the scale required to address water security within the basin. In this way they deliver tangible long-term gains to water security for individual companies.
Through participation in a Water Fund, companies can thus break down barriers to collective action and attain greater gains in water security than they can achieve by working on their own.
By combining the comparative strengths of different stakeholders, Water Funds create an effective and durable governance and management structure that ensures an inclusive approach to water security.
Collectively, always working with partners, Water Funds identify and implement means for the long-term financing of water security programs, programs that deploy robust natural solutions that improve water quality and supply, in a way that is adaptive to changes in climate and populations. This helps to restore the health of local watersheds (the lands around streams, lakes and rivers) in a way that provides diverse benefits to communities, ecosystems and cities.
Organized on this scale, Water Fund activities ‘pay for themselves.’ For instance, 1 out of every 6 cities can pay for natural solutions through savings in water treatment costs alone.
Importantly, for those companies that engage with them, Water Funds offer a tested vehicle that leverages each organisation’s capacity and resources and, via collective action, expands the expertise and money available to deliver durable outcomes at the required scale.
Water Funds also improve the credibility and legitimacy of any actions to address water security, providing corporate partners with an improved legal and social license to operate.
How can a company contribute to a Water Fund?
Companies can support Water Funds in a range of ways — traditionally spanning a range of categories that include HR; decision-making; advocacy; and financial investment.
Resources, including Human Resources: Companies can support by lending experts to conduct research on behalf of the Water Fund or loan administrative or other staff. In-kind contributions can go beyond this, such as providing office space to the Water Fund or providing equipment or seeds for upstream farmers.
Governance & Decision-Making: Local corporate leaders can offer invaluable support by sitting on the Steering Committee of the Water Fund or by participating in the technical committees that supervise on-the-ground activities.
Advocacy & Influence: Companies can lend valuable support to Water Fund communications, for instance by engaging with other companies, with consumers, or with government agencies in order to advocate for the Water Fund and strengthen support for its activities. They can also support local or national coalitions that support the goals of Water Funds in-country.
Financial Investment: Companies can contribute one-off or long-term financial contributions to support the Water Fund, often particularly valuable in the early years when a Water Fund can require flexible funding to begin operations and start to make the case for longer, higher-level support from governments.
Challenges in engaging via a Water Fund approach
TNC experience with Water Funds deployed across the globe shows that corporate partners value the benefits they derive from engaging. However, whilst while Water Funds offer many opportunities, there are some challenges that a business may face. Considering these challenges ahead of time will help a company proactively address these concerns, gaining stronger internal buy-in and reducing obstacles to long-term engagement.
Firstly, while Water Funds provide a strong base for stakeholders to improve their water security, they are not a one-size-fits-all tool.
Water Funds must be adapted to address the local context and policy landscape. There may be specific geographical, social or policy barriers to a Water Fund approach that expand the time it will take for success and which may dilute the benefits that corporate partners can expect.
TNC thus encourages companies to conduct their own due diligence based on local factors in order to identify what these barriers are. Clearly there is a range of interventions that companies can pursue to address water security; not all interventions require a Water Fund.
Companies engaging via Water Funds must prepare for an ongoing campaign to educate decision-makers — both externally and internally — as to what Nature-based Solutions are and how they work.
Companies should expect that securing participation from other stakeholders and across sectors in the watershed can prove cumbersome. It is natural that companies, water utilities, municipalities and governments all have differing objectives when it comes to water security and a different sense of urgency. Some may be familiar with Nature-based Solutions, others may need to be brought up to speed. Such ‘education’ may also need to take place within a corporate hierarchy as well.
Nevertheless, large water users (whether national or multinational business) can play a vital signaling role to others. Once early momentum is achieved, visibility of Water Funds at the government level increase and this can have a significant multiplier effect. Impact at scale becomes a possibility and the burden on one single company to promote water security locally is reduce. Without broad collective action, the problems on the ground may remain intractable.
It can be hard to reach consensus among stakeholders, especially in the early days of a Water Fund when partners are unfamiliar with working together.
Collective action is never as quick as acting alone. As the old African proverb suggests, “If you want to go fast, go alone. If you want to go far, go together.”
Nevertheless, the time required for collective action to ‘kick-in’ may make corporates uncomfortable, especially if they are used planning across short time-frames when thinking about recouping investments. This is particularly the case if the engagement is seen through the lens of corporate social responsibility rather than as part of strategic systems thinking.
To counter the pressure for immediate pay-back (at the expense of impact at scale) it can be helpful to regularly weigh up both costs and benefits to engagement — as well as acknowledge from the outset that collection action approaches may take time to demonstrate tangible benefits. Moreover, some benefits are hard to measure, such as the social license to operate or ‘costs avoided’ that companies may benefit from.
It is crucial to effectively communicate throughout the company that collective action and systems-thinking approaches do take time, that behavior change can be slow and to set realistic expectations from the onset.
Finding out more, joining a community
To date, 41 Water Funds have been developed in 13 countries with another 25 under development. They have proven to be useful tools to achieve collective action within watersheds to promote water security.
Working with partners, TNC’s goal is to reach 50 Water Funds by 2022 and by 2025, we aim to empower 300 early adopters to begin investing in nature-based solutions. TNC research indicates that 1,000 cities could be employing nature-based solutions with a positive return on investment.
Impact at this scale would equate to 70 million people with better water security, 150,000 people having improved livelihoods, 2 million hectares of watersheds protected across Africa, Asia and Latin America.
The opportunity is there. Now we just need enlightened thinkers like you to help scale these opportunities.
To learn more about how water shapes our society and economy — and opportunities in your priority areas to address water security — please visit “H20: The Molecule that Made Us” (highlights from a PBC and TNC collaboration) or the CEO Water Mandate’s Water Action Hub.
Together, we can amplify corporate action to address water security.
Endnotes, References and Further Reading
- Water funds featured in Revolve Magazine #30 (Winter 2018), op-ed by TNC’s Andrea Erickson:
Feature | Water funds
We should look to nature for solutions to the global water crisis. New York City faced a challenge in the 1990s: the…
- WRI blogpost on how one quarter of the world faces significant water stress:
17 Countries, Home to One-Quarter of the World's Population, Face Extremely High Water Stress
Once-unthinkable water crises are becoming commonplace. Reservoirs in Chennai, India's sixth-largest city, are nearly…
- New York Times article looking at water crises across the world:
A Quarter of Humanity Faces Looming Water Crises
BANGALORE, India - Countries that are home to one-fourth of Earth's population face an increasingly urgent risk: The…
- A story of Quito — the first ‘Water Fund’:
The story of Quito — the first ‘Water Fund’
This short article reviews the success of the Quito Water Fund, now celebrating 20 years. FONAG, as the Water Fund is…
- Learn more about TNC’s source water protection and water funds work:
Better Water Security? We Sink or Swim Together
Global Insights | Perspectives Key Takeaways Water security-the capacity to provide safe, reliable water supplies and…
- How TNC is applying the water fund concept in Africa:
Protecting Africa’s Troubled Waters
A New Application for an Old(ish) Idea By now, water funds are no longer a new idea. TNC developed the first one in…
- TNC’s Water Funds toolbox:
TNC Water Funds Toolbox
Water Funds are organizations that design and enhance financial and governance mechanisms which unite public, private…
- Broadly accepted definition of water governance, from SIWI:
Improved Water Governance - Stockholm International Water Institute
Our goal is to contribute to integrated, transparent and participatory governance processes, as cornerstones to ensure…
- CEO Water Mandate, a Business Case for Water Stewardship:
Water Stewardship 101: The Basics | CEO Water Mandate
This course provides an overview of the most essential elements of corporate water stewardship. It allows businesses…
- World Economic Forum Global risks report, 2019: