What is a water risk assessment?

From the manufacturing plant to the corporate office, all companies need water for their operations. While organizations with significant water impacts—such as agriculture and textiles—are vulnerable to more business risk, companies with relatively low water use still face major water-related risks.

A water risk assessment (WRA) can be a critical tool in identifying, managing, and/or mitigating water-related impacts from issues such as local water stress, potential water quantity and quality disruptions, to water-based political challenges while contributing to a larger company-wide risk management strategy.

What types of organizations get water risk assessments?

Although heavy water consuming industries—such as power generation, metal manufacturing and extraction, chemicals, and wood and paper products—often assess their water risk, organizations in any industry can strategically benefit from understanding where water risk lies in their value chain.

For example, a paper mill on the banks of a large lake may be less at risk for water depletion but contain a substantive risk for flooding and reduction in water quality. A commercial real estate company operating in the desert may face local regulation and reputational risk for how their water is being used in a water-scarce region.

Water quality and supply fluctuations have become more common as we feel the effects of climate change. It’s important that businesses in every industry strategically identify where operations and water risks intersect—and a water risk assessment can help you accomplish that.

What does a water risk assessment evaluate?

A WRA identifies potential water-related risk exposure on a company and can serve as a foundation in setting water-related goals and organizing a response to mitigate risks. As businesses continue to operate in a world of growing water scarcity, they must consider the holistic cost of water to their operations, reputation, and stakeholders upstream and downstream in the value chain—especially in at-risk water regions.

At its core, a WRA evaluates the relationship between water-related issues and how these issues can be a business risk. A WRA can focus on a country, region, state, and/or facility and the water basins where water-related issues should be accounted for. Risks from these issues can arise from any of the following:

• Water quantity and quality challenges (droughts or floods)
• Complications related to climate change (low precipitation levels)
• Complications related to upstream and downstream stakeholders (water rights or conflict)
• Water legislation (environmental laws)
• Response measures (water restrictions)
• Ecosystem and habitat (impacts on wetlands and fisheries)

While all WRAs look at current water use in business operations and project how that use may be at risk in the future—typically 30 to 50 years—every WRA is different in terms of what is measured, variables used, and tools used to generate risk outputs and data.

What happens during a water risk assessment?

Throughout a WRA, organizations assess fresh and saltwater basin risk relative to identified value chain locations, utilizing industry-leading tools and databases. In addition to the standard water data that tools like the WRI Aqueduct and WFF Water Risk Atlas provide, it is helpful to include company-specific variables in the analysis to narrow the scope and help illuminate where risks may exist specific to the company. Ranging from water withdrawn at each facility to water efficiency per pound of produced product, these internal variables make the WRA unique to the organization and highlight company-specific water risks.

Following a water risk assessment, companies will have the analysis needed to make informed strategic decisions to mitigate water-related risks and capitalize on water-related opportunities. An established WRA also provides a structured assessment process to regularly update as business operations, climate patterns, and political regulation evolve.

What do I need to get started with a water risk assessment?

Before getting started on conducting a water risk assessment, there are a variety of factors organizations should take into consideration.

• What’s the overall goal? What do you hope to do with this WRA? Are there specific pieces of information you are being asked to include for a public report? Knowing what the overall goal is will determine how the WRA will be conducted.
• Which industry-standard tool will be used? What are the differences between utilizing the Ecolab Water Risk Monetizer versus the WRI Aqueduct? What other tools have you compared, and what are their advantages and disadvantages when applied to your company’s situation? With so many different tools and datasets available, understanding how each one differs will provide more accurate and relative information to achieve the overall WRA goal.
• What is the scope? Will you be assessing all organization sites or just manufacturing facilities? Are you including your whole value chain or just pieces of it?
• What internal data is available? What water-usage data in the organization is available? Are there other metrics that can be used in the assessment? Identifying what types of information are available and missing will help foster a thorough WRA and contribute to overall water-related data management.

Thinking about and answering these questions is the first step in getting started with a water risk assessment and will help guide you to better understanding your water-related risks and opportunities.

Ready to get started with your water risk assessment? Want to learn more about how a WRA may help you improve your sustainability strategy and risk management? Click here to get to know our ESG Metrics Management technical team and contact us to learn more about how we can help.