water risk - sedex...opportunities in their supply chain. this briefing: introduces why water poses...

sedexglobalcom Responsible sourcing insights briefing

1

Water Risk Briefing Q1 2015

In this briefingWe have produced this briefing to help companies understand address and innovate around water risks and opportunities in their supply chain

This briefing Introduces why water poses risks to business Identifies common water risks in global supply chains Provides best practices and tools to help companies

tackle water risks in global supply chains Previews opportunities for basin-level solutions to water

challenges

In the news ldquoForeign Conflict Water Head List of

WEFrsquos Top 10 Global Risksrdquo (Bloomberg 15 January 2015)

ldquoWater woes could open taps on corporate riskrdquo (Reuters 5 January 2015)

ldquoWater is far more valuable and useful than oilldquo (The Guardian 8 Dec 2014)

ldquoAsian neighbours respond to Maldives water crisisldquo (Financial Times 7 December 2014)

ldquoWater sanitation and hygiene what should we aim for post-2015ldquo (The Guardian 8 Dec 2014)

ldquoIs water the new bottom line for the private sectorldquo (Forbes 8 Dec 2014)

Introduction The need for actionWater is crucial to every business Yet global fresh water resources have become increasingly exposed to risk as a result of growing demand and strains on supply due in part to the mounting effects of climate change as well as negative impacts from human activity Businesses face or will soon face risks from water that could have a profound impact on profitability brand value and even the ability to operate

Even if a business is highly water efficient or uses a relatively small amount of water they may still be at risk If a business operates in a water-stressed catchment where the rules and allocations are non-existent or where water is apportioned poorly to people or ecosystems the business faces a myriad of operational financial and reputational risks Conversely those pursuing efficiency in water-abundant areas may not be optimizing the use of their capital and efforts could be better spent on other issues

Risks are particularly relevant to companies in the food beverage apparel retail and agricultural products sectors where the majority of a companyrsquos water risks exist in the agricultural commodities they source Companies who fail to manage supply chain water risks may see impacts on their performance such as increased input prices disruptions in supply or reputation damage among others Gaining an understanding of the fundamental societal investment and environmental water challenges that exist today and lie aheadmdashand the implications of these for economies ndash should be a top priority for business leaders

However water also provides unique leadership opportunities Businesses can catalyse solutions to the worldrsquos water problems An integral and shared resource water can only be managed sustainably if all users in a river basin work together and the private sector is uniquely positioned to drive collaborative action Nimble influential and keenly aware of the risks to growth businesses can move quickly on water issues introduce innovation and bring others into the conversation

copy Zeb Hogan WWF - Hogan

bull Water demand is projected to increase by 55 globally between 2000 and 2050

bull Almost half the worldrsquos population will be living in areas of high water stress by 2030

bull More than 25 of global agriculture is grown in high water stress areas

bull In the World Economic Forumrsquos tenth global risk report water crises were listed as the top risk in terms of impact

bull In the Carbon Disclosure Projectrsquos 2014 Water Report over two thirds of Global 500 companies report facing substantive water risks most companies report they experienced detrimental water-related impacts in the last five years


2

Insights from WWF

Attributes of water are location-specific and as a result water is not fungible or interchangeable Water has many attributes including cost location quality (numerous kinds) time value and values (how people relate to water) It is tempting for companies to establish water neutral goals much as many have done with ldquocarbon neutralrdquo However actions to reach this goal must be tailored to water status and specific conditions A uniform set of tactics does not translate readily everywhere as it would for addressing greenhouse gas emission reductions for instance

WWF helps companies and investors understand their water footprints and water-related risks More importantly we help our corporate partners go beyond adopting water efficiency practices to becoming better water stewards Water stewardship requires collaboration with all levels of government local communities and other industries in a basinmdashsometimes even competitorsmdashto ultimately change how water is governed and embed the value of nature into business planning We challenge businesses to think differently about water and to help us accelerate stewardship efforts because itrsquos good for business itrsquos good for people and itrsquos good for nature

Remember even if you are an excellent water manager your immediate and upstream neighbours may still put you at risk What good are you really doing if you share a water resource that is severely degraded and polluted You will still suffer the regulatory consequences and pay the costs of treating water for use Furthermore if local governments build poorly planned infrastructure near your factory or an element of your supply chain you will still bear the risks of flooding or scarcity Only by working together can you address water risks holistically

And as water continues to grow as a risk to businesses investors and consumers alike are eager to see who is addressing water challengesmdashand who is not Companies that find new innovative and disruptive ways to rethink how water flows through their business will be better positioned to secure their license to grow in an increasingly resource constrained world Those that lead collaborative efforts too will find long-term solutions to ensure a healthy and resilient business that contributes to a responsible economy and sustainable watershed

Water runs through everything connecting everyone upstream and downstream While itrsquos important to understand and address your direct

risks both within your four walls and throughout your supply chain

the real impacts or opportunities are found through collaboration

and innovation

copy Audra Melton WWF


3

Terms defined

Water footprint An indicator of freshwater use that looks at both direct and indirect water use of a consumer or producer The water footprint of an individual community or business is defined as the total volume of freshwater used to produce the goods and services they consume It is a geographically explicit indicator showing not only volumes of water use and pollution but also location

Water scarcity The volumetric abundance or lack thereof of freshwater

resources Scarcity is human driven it is a function of the volume of human

water consumption related to water resources in an area

Water stress The ability or lack thereof to meet human and ecological

demand for freshwater It is more inclusive and broader than scarcity It

considers several physical aspects related to water resources including

availability quality and accessibility which are often a function of infrastructure

sufficiency and water affordability among others

Water risk The possibility of an entity experiencing a water related challenge

(water scarcity water stress flooding infrastructure decay drought) The extent

of risk is a function of the likelihood of a specific challenge occurring and the

severity of its impact which itself depends on the intensity of the challenge as

well as the vulnerability of the actor

Watershed An area of land that drains all the streams and rainfall to a

common outlet such as the outflow of a reservoir mouth of a bay or any point

along a stream channel Used interchangeably with river basin drainage basin

catchment

A Water Footprint Assessment is a useful approach for businesses to gain a better understanding of where their water consumption and water quality impacts occur throughout their value chain For many the conclusion will be that their supply chain water footprint is much larger than their operational water footprint Life Cycle Assessment (LCA) can also be a useful tool in this regard identifying points of intervention in the life cycle of a product in terms of addressing water use efficiencies However it is important to note that both water foot-printing and LCA have their limitations particularly with regard to highlighting water quality impacts and should be used as part of a comprehensive ldquotoolkitrdquo for addressing water risks

Typical Value Chain Water Use for the Beverage Producing SectorSource The Water Risk Filter

copy Bruno Pambour WWF - Canon

4


Data insights Sedex Global PlatformCommon Water Indicators As

of Env issues

Lack of availability of relevant permits for use and disposal of resources (eg emissions etc)

19

Inadequacy of waste disposal systems 12

Sitersquos system for checking their environmental performance against relevant laws and customers requirements inadequate

11

The site is not aware of laws and regulations governing environment

10

Environmental management system not appropriate to the sitersquos operations

10

Waste water treatment 2

Lack of provision of an effluent treatment plant for the effective treatment of waste water

1

Management of water usage 1

Other 34

Audits conducted at supplier sites show thatbull Environmental issues including water are among the top

five non-compliances globallybull Of key water-related issues a lack of available permits is the

most common representing 19 Others include inadequate waste disposal systems (12) waste water treatment (2) management of water usage (1) and lack of an effluent treatment plant (1)

Supplier sites own self-assessment data shows thatbull 97 of respondents believe they meet all relevant legal and

customer requirementsbull Less than 1 are unaware of the relevant requirementsbull 86 have senior manager or board level representation for

water related mattersbull 91 do not believe themselves to be in a particularly water

stressed areabull 52 do not assess their impacts on water usagebull 43 report an environmental management policy

which covers water issues and 79 a policy for water management

bull 73 have targets to manage the reduction and re-use of water

bull 48 have assessed the impact of water usage on the water catchment

bull Only 14 have a dedicated internal resource for implementing necessary procedures

bull 75 are assessing water pollution related risks and a further 73 are setting targets in relation to their findings


Environmental assessment options were added to the SMETA

(Sedex Members Ethical Trade Audit) Methodology Best Practice

Guidance and to the Sedex platform in 2012

Data is from 4-pillar audits between 1st September 2012 to

1st September 2014 The sample analysed 123355 audits

conducted over 14029 sites resulting in 123176 non-

compliances Data is correct as of the 4th November 2014

Data points less than 1 are rounded up to 1 decimal space

Sample size split by sector

copy Global Warming Images WWF-Canon

74

80

3 15

Manufacturing

Agriculture(Large)

Agriculture(Small)

ServiceProviders

IntermediariesAgents

5


Key Insights on Water Risk

Better systems could help more suppliers meet requirements on water and other environmental issuesThe majority of environmental non-compliances originate from a lack of supplier understanding of relevant laws and regulations and the need for a more structured approach to planning and implementing regulatory environment protection measures However Sedex Self Assessment Questionnaire (SAQ) data reveals that 97 of respondents state they meet all relevant requirements Gaining water awareness ndash in terms of how water impacts business and how business impacts water ndash is an ongoing and iterative step for all companies Supplier sites would benefit from ongoing capacity building and education programs to raise awareness as well as from ongoing support to improve structured site-level environmental management systems including the organizational structure and resources needed

Increased investments needed to make sure water usage and waste water are properly managedThree of the top audit observations are related to water usage and waste water suggesting water management systemsrsquo investments may be needed to minimise water use and to properly treat and dispose of wastewater

Better understanding of local water issues enables appropriate stewardship strategiesThe majority of SAQ respondents do not believe themselves to be located in a particularly water stressed area This could explain why the processes for reducing impacts on water scarcity are less resourced than other considerations possibly because they do not know they are located in a water stressed area or because of the sector they are in (eg 93 of respondent sites are outside of the agricultural sector) As water scarcity - and the awareness of it increases - we can expect to see more robust practices in place Understanding the context of location is important to addressing water risks Reducing water use is not necessarily the most effective or at least not necessarily the top priority for addressing water risks in a particular river basin If embedded as part of a wider strategy these activities can be useful if they are locally relevant and demonstrate measurable benefits to watersheds or people

Positive efforts being made to manage and set targets around water risksSenior manager representation for water related issues is high with 86 of SAQ supplier respondents having a senior manager or board member responsible for water concerns Moreover it is promising to see that 75 are looking towards water related risks and a further 73 are setting targets in relation to their findings As only 14 of sites have a dedicated internal resource for implementing procedures sites would likely benefit from additional internal resource to translate executive led assessment and measurement initiatives into practical plans

copy Joana Toro WWF - Colombia

Nine farmers voluntarily started participating in a water stewardship effort The AWS standard (then still being finalized) was used and tested as a roadmap

As MampS worked with South African farmers they were able to demonstrate that they were already highly water efficient producing their crops with less than 50 of the water used on average globally but that there were opportunities for further improvement and to become better water stewards in the catchment area

WWF brought together the farmers and other catchment stakeholders to assess the wider catchment risks Three shared risks were identified

bull Water quality around rapidly growing urban areas (physical water quality risk)

bull Lacking access to shared information around water stewardship (hindering responsible water use)

bull Alien invasive plants and reduced available water in the headwaters (physical water quantity risk)

The identification of these risks was translated into three water stewardship opportunities that will involve the catchment management agency and that will invite other farmers the municipality and urban residents to participate MampS will continue to work with stakeholders in the Ceres area to address the risks through tailored collective action and to help other water users become good water stewards in the Western Cape

6


Dealing with water risk in MampSrsquo agriculture supply chains

With the agricultural sector using about 70 of the planetrsquos accessible freshwater itrsquos a sector that simply cannot be ignored when it comes to water stewardship But how does water stewardship work in agriculture supply chains and what can your business do

Getting startedUsing the WWF-developed Water Risk Filter retailer Marks amp Spencerrsquos was able to home in on key risk hotspots It identified stone fruit suppliers in the Breede River Catchment in South Africarsquos Western Cape as a water thirsty crop in a water scarce area Now MampS and Woolworths (South Africa) are partnering with WWF and the Alliance for Water Stewardship (AWS) to work with farmers in the stone fruit supply chain to mitigate their water risks

South Africa as a country faces many water issues including limited and variable rainfall growing water quality concerns and on-going challenges implementing water policy At the same time South Africa and especially the Western Cape region is well-known for its international fruit exports so it is an area that is likely to be a risk hot spot for many food retailers

ldquoThis project is an exciting journey initiated by MampS and WWF and the first volunteer farmers to reduce risk andembrace good water stewardship on the farm in the catchment and in the supply chain This work will mean MampS and Woolworths benefit along with the farmerscommunities and the environment in the Western Cape rdquoLouise Nicholls Head of Responsible Sourcing Marks amp Spencer

Water stewardship in the Western Cape

copy Audraudra Melton WWF-US


7

Audra Melton WWF-US

Principles for Responsible Investment

Investor Engagement on Water Risks in Agricultural Supply Chains

Even as it is becoming widely acknowledged that water risks are particularly acute for certain sectors with significant agricultural supply chains little is known about the extent and materiality of these risks This stems from the complexity in agricultural supply chains the localized and disperse nature of water risks and the limited availability of data which prevent simple analysis of company exposure To begin to address this complex issue WWF has partnered with the United Nations-supported Principles for Responsible Investment (PRI) Initiative to better understand which crops are most at risk in terms of water where they are grown and which supply chains are most exposed With over 1260 signatories the PRI initiative represents over $45 trillion USD in management assets including water intensive commodities like cotton sugar and corn

The results of this research confirm that companies in the food beverage apparel retail and agricultural products sectors are indeed reliant on agricultural commodity raw materials from regions facing high levels of water stress As a product of this engagement the PRI released the ldquoInvestor Guidance Document Water Risks in Agricultural Supply Chains rdquo to educate and engage potentially at-risk companies on the impacts water scarcity could have on their supply chains In addition to this document as part of the White House Climate Data Initiative WWF has committed to expanding maintaining and sharing our research resulting from this work with PRI with leading technology companies in order to empower industry financiers and policymakers to strengthen global water stewardship food security and climate resiliency

How can your business get involved

Substantive lasting risk mitigation requires collective action as demonstrated by these two projects To find collective action projects that your company can get involved in please visit the Water Action Hub


8

Sustainable management of shared water resources must also be led at a basin

level Companies should play an

active role to shape legislation and

governance models so that water is

managed sustainably for communities the

environment and businesses whilst enhancing social

and environmental outcomes

Addressing water risk in businessesFrom small steps to basin-level solutionsWater Stewardship for business is a progression of increased improvement of water use and a reduction in the water-related impacts of internal and value chain operations More importantly it is a commitment to the sustainable management of shared water resources in the public interest through collective action with other businesses governments NGOs and communities

Once the global context is established

a business should further investigate its

own risks and impacts Carrying out a water footprint assessment can be valuable but foot-printing alone doesnrsquot necessarily give a complete or

accurate picture For example a large water

footprint in a water abundant region may not be a problem but water quality may be

The first step toward addressing water risks

is for a business to understand the global

challenges around water and to socialize

water issues within the business with

employees Doing so provides important

context to the situation in which the business

is operating

Supply chains are located where

targeting amp addressing external conditions is necessary This

requires collaboration with public-and-private

sector neighbours as well as with local

communities to identify the issues

that impact everyone and to work together

to address them Businesses who lead

such collaboration will unearth powerful

opportunities

Once the areas of highest risk amp impact

are identified the business can prioritize how to address water challenges This could

include reducing water use training staff fixing leaks

measuring water use improving efficiency etc Action to include

supply chain water risk and creating central

policies amp goals permeating the entire

business

World Resource Institutersquos Aqueduct A comprehensive global database and interactive mapping tool on water-related risks worldwide Aqueduct makes use of 12 global indicators to inform companies investors and other audiences about geographic exposure to water-related risks

Sedex Supplier Workbook Water section Offerspractical guidance to help suppliers develop businessEnvironmental and water related systems

Sedex Water Scarcity webinar held in partnershipwith the UN Global Compactrsquos UK Network focused onthe complexity of gaining transparency of water use insupply chains and the benefits to businesses who aresuccessfully taking action


9

WWFrsquos Water Risk Filter Helps companies andinvestors ask the right questions about water to assessrisks and learn what to do in response The tool coversall relevant elements of water risks all industries andall countries of the world It interprets the best availablescientific data and translates it into risk numbers Mapassessed facilities or investments on numerous waterrelated map overlays A structured set of responsesand up-to-date case studies enable risk mitigation and a water stewardship strategy

WWFrsquos Supply Risk Analysis A framework usedto evaluate the greatest risks and potential impactsassociated with commodities sourced or financed bycompanies and to highlight where companies canfocus their efforts to best mitigate their supply risksThis framework can also be used to compare risksacross multiple commodities and assist in prioritizationof sustainability efforts WWF maps out practical stepsfor risk mitigation and serves as an advisor throughoutimplementation

CEO Water Mandate A public-private initiativelaunched in 2007 by the UN Secretary-Generaldesigned to assist companies in the developmentimplementation and disclosure of water sustainabilitypolicies and practices

Water Action Hub An enabling platform designed tohelp businesses understand their options for collectiveaction on water issues and promote collaborationamong business and other stakeholders It helpscompanies identify potential collaborators and toengage with them to improve water management inregions of strategic interest The Water Action Hub us a platform developed by the CEO Water Mandate

Carbon Disclosure Project An international NGOproviding ways for companies and cities to measuredisclose manage and share vital environmentalinformation including on water

Water Resources

copy Simon de Trey-White WWF-UK

sedexglobalcom

EuropeSedex Information Exchange 5th Floor24 Southwark Bridge Road London SE1 9HF | +44 (0)20 7902 2320

North AmericaSedex Information Exchange 26th Floor 405 Lexington Avenue New York City New York 10174 | +1 888 487 6146

ChinaSedex Information Exchange Apollo Building 1440 Yan An Road (Central) Shanghai 200041 | +86 (0)21 6103 1622

Responsible sourcing insights briefing

About this briefing

This briefing is the latest in a series of films publications resources webinars and in-person events by Sedex Global and partners These focus on a range of topics including key emerging trends for sustainable supply chains by region and emerging CSR topics risk and performance management in global supply chains highlighting companiesrsquo achievements of good practice and best practice impact collaboration and convergence in responsible business

See httpwwwsedexglobalcomresourcespublications

About the partner author organisations

Sedex Global sedexglobalcomOur mission is to drive collaboration increase transparency and build the capacity thatrsquos needed to raise standards across all tiers of the supply chain We offer the worldrsquos largest collaborative platform for managing and sharing ethical supply chain data along with leading-edge services which multi-national companies use to understand monitor and manage supply chains risks and improve standards

Sedex works to drive engagement up and down the supply chain encouraging follow up corrective actions on audits and facilitating dialogue to address challenges lsquoon the groundrsquo We collaborate with a range of stakeholders to share insights and promote best practice on responsible supply chain issues

Sedex offers a range of services to enable effective responsible supply chain management Seehttpwwwsedexglobalcommember-services

WWF httpswwwworldwildlifeorginitiativestransforming-businessFor 50 years WWF has been protecting the future of nature

The worldrsquos leading conservation organization WWF works in 100 countries and is supported by 11 million members in the United States and close to 5 million globally WWFrsquos unique way of working combines global reach with a foundation in science involves action at every level from local to global and ensures the delivery of innovative solutions that meet the needs of both people and nature

copy Sedex 2015All texts contents and pictures on this publication are protected by copyright or by the law on trademarks The publication is subject to the copyright of Sedex Information Exchange Ltd Reproduction is authorised except for commercial purposes provided that Sedex Global is mentioned and acknowledged as the source Copyright of third-party material found in this publication must be respected

Sedex global statisticsbull 37000 buyer and supplier members globallybull 30 major industry sectors based on the UNSPSC (United

Nations Standard Products and Services Code) listingsbull 150 countriesbull Sedex members represent more than 24 million workers

worldwidebull 49293 supplier sites


2

Insights from WWF

Attributes of water are location-specific and as a result water is not fungible or interchangeable Water has many attributes including cost location quality (numerous kinds) time value and values (how people relate to water) It is tempting for companies to establish water neutral goals much as many have done with ldquocarbon neutralrdquo However actions to reach this goal must be tailored to water status and specific conditions A uniform set of tactics does not translate readily everywhere as it would for addressing greenhouse gas emission reductions for instance

WWF helps companies and investors understand their water footprints and water-related risks More importantly we help our corporate partners go beyond adopting water efficiency practices to becoming better water stewards Water stewardship requires collaboration with all levels of government local communities and other industries in a basinmdashsometimes even competitorsmdashto ultimately change how water is governed and embed the value of nature into business planning We challenge businesses to think differently about water and to help us accelerate stewardship efforts because itrsquos good for business itrsquos good for people and itrsquos good for nature

Remember even if you are an excellent water manager your immediate and upstream neighbours may still put you at risk What good are you really doing if you share a water resource that is severely degraded and polluted You will still suffer the regulatory consequences and pay the costs of treating water for use Furthermore if local governments build poorly planned infrastructure near your factory or an element of your supply chain you will still bear the risks of flooding or scarcity Only by working together can you address water risks holistically

And as water continues to grow as a risk to businesses investors and consumers alike are eager to see who is addressing water challengesmdashand who is not Companies that find new innovative and disruptive ways to rethink how water flows through their business will be better positioned to secure their license to grow in an increasingly resource constrained world Those that lead collaborative efforts too will find long-term solutions to ensure a healthy and resilient business that contributes to a responsible economy and sustainable watershed

Water runs through everything connecting everyone upstream and downstream While itrsquos important to understand and address your direct

risks both within your four walls and throughout your supply chain

the real impacts or opportunities are found through collaboration

and innovation

copy Audra Melton WWF


3

Terms defined


















catchment




4



of Env issues


19



11


10


10



1


Other 34
























74

80

3 15

Manufacturing

Agriculture(Large)

Agriculture(Small)

ServiceProviders


5















6










7

Audra Melton WWF-US








8




















is operating









opportunities







business





9






Water Resources


sedexglobalcom





About this briefing














3

Terms defined


















catchment




4



of Env issues


19



11


10


10



1


Other 34
























74

80

3 15

Manufacturing

Agriculture(Large)

Agriculture(Small)

ServiceProviders


5















6










7

Audra Melton WWF-US








8




















is operating









opportunities







business





9






Water Resources


sedexglobalcom





About this briefing













4



of Env issues


19



11


10


10



1


Other 34
























74

80

3 15

Manufacturing

Agriculture(Large)

Agriculture(Small)

ServiceProviders


5















6










7

Audra Melton WWF-US








8




















is operating









opportunities







business





9






Water Resources


sedexglobalcom





About this briefing













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7

Audra Melton WWF-US








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opportunities







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Audra Melton WWF-US








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business





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About this briefing














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business





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business





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About this briefing













water risk - sedex...opportunities in their supply chain. this briefing: introduces why water poses...

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