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Do you know the true cost of water?

As water becomes an increasingly scarce resource, companies are realising that they need to quantify and evaluate their water-related risks to ensure the long-term sustainability of their businesses. Veolia has come up with a new tool to help them do that.

Water is essential to humanity’s survival, but despite its importance it is also one of the most overlooked resource perhaps as it is available to most of us with just a convenient turn of the tap.

All over the world, however, the precious commodity is being threatened by overuse, pollution and climate change, and water-related risks that threaten the survival of people and businesses are a reality that needs to be addressed.

By 2050, about 70 per cent of the world’s GDP will be produced in water-scarce regions – according to figures from the United Nations Environment Program – while more cities and industries will be facing economic challenges due to severe water events such as flooding or droughts.

Water insecurity will increasingly present the world’s largest industrial water users with serious challenges and they are facing pressure to build long-term resilience to water challenges into their business.

Meanwhile, many countries and companies do not actually know the true cost of the water they use and the risks to which they are exposed.

Veolia Water Technologies, the 2.3 billion euros French water company with over 130 business units around the world, hopes to address this knowledge gap.

It has created a  metric tool called the ‘True Cost of Water’ to help businesses and municipalities assess the financial implications of various risks and impacts concerning water, allowing these organisations to make better decisions in managing water.

The ‘True Cost of Water’ tool combines traditional calculations of capital and operating expenditures with analysis of water risks and their financial implications for businesses and organisations.

This method not only assesses the cost of water, it also evaluates the financial opportunities that business owners can capture in the short term, says Johann Clere, global director of business development for industrial markets at Veolia, in a recent interview.

“Our first questions are: ‘Do you know the financial impact of water risks ?’ The answer is usually no,” explains Clere.  “Then we ask, ‘Do you know how much more value you can capture in the short term by better water management?’ They’ll say, ‘short term?  More value? What are you talking about?’ and that’s how we engage.”

Risks and costs

Veolia’s ‘True Cost of Water’ tool puts in financial terms three types of costs relating to water and its usage.

This is not just about brand resilience and corporate social responsibility but truly creating shared value” he says. “When they recognise that this sort of financial and risk management sets them apart, they have a real appetite to move forward.”

Johann Clere, global director of business development for industrial markets, Veolia

The first is direct costs, such as the price of water, operational costs and investments in water infrastructure.

The second is indirect costs like environmental fines, insurance premium, legal and corporate social responsibility costs. Finally, there are costs related to risks, which could include the financial consequences of water shortages, flooding, financial such as credit ratings and regulatory risks, and even reputational risks, Veolia says.

“Usually people just think about water shortages, but actually too much water, flooding, that’s also affecting strongly business continuity,” Clere says.

Changing water quality can also have a bad impact on companies’ bottom-line. So what we do is we try to put a price on those risks. We can help reduce the probability for the risk to materialise and increase resilience.

The True Cost of Water audit can be done using either a top-down approach – for instance, working with the headquarters of a large MNC then applying it to its different sites around the world – or a bottom-up approach, which involves starting at a single important location, thereafter which the knowledge is transferred to the rest of the company.

The tool has been used in a variety of sectors such as the  oil sands industry in Canada, big food and beverage companies, and pulp and paper.

While some of Veolia’s customers are not heavy water users, they value their brands and reputation and want to be known as good stewards of natural resources.

“On the other hand, you got the heavy user which is oil and gas, power, mining, pulp and paper, where they use a lot of water and the issues around water pollution can be very important,” Clere says.

Southeast Asia’s potential

Companies in Southeast Asia are gradually starting to understand that displaying this sort of environmental leadership and stewardship is a competitive advantage, Clere notes.

This is a noticeable difference which Clere sees from 2012, when they first introduced the True Cost of Water methodology to customers.

“Initially, we engaged the major brands in the United States and Europe,” Clere says. “But now we see opportunities opening up in Asia, where companies are starting to understand the true cost of water, and want to have a more holistic management of water to unlock shared value opportunities but also increase yield or enhance speed to market.”

For instance, Veolia announced in July it will conduct a series of studies for a Thai conglomerate that operates 12 paper production plants throughout Southeast Asia.

The company, which declined to disclose its identity, wanted to expand its paper plant in Prachinburi, Thailand by 30 per cent, and needed to understand its implications on the company’s use of water as paper production is a very water-intensive process.

To be conducted over 12 weeks, the test will start with an in-depth water system audit. The results will then be benchmarked against other regional and global pulp and paper companies’ scores using Veolia’s Pulp & Paper industry Water Benchmark.

Consolidated on Veolia’s knowledge and experience in the pulp and paper industry over the years, the benchmark provides a reference for companies to better understand their water consumption practices against their industry peers, Veolia says.

The assessment will also include the Veolia Water Impact Index (WIIX) tool that measures the plant’s water footprint and considers three crucial aspects: the amount of water it uses, the level of stress on water resources, and the quality of the water.

Using this information, the Thai company will be able to set more efficient water usage strategies to mitigate existing water challenges such as water scarcity and the impact of misusing or overusing water.

Finally, to complete the water audit, Veolia will advise its client on how it can monetize water risks and make sustainable business decisions that can ensure long-term profitability.

It does this by attributing a dollar value to the impact of future investment associated with water risks and opportunities at the plant. The paper producer can then make informed choices on which investments to make to support its overall expansion.

Another Southeast Asia company that has worked with Veolia to implement the water audit system is Tenaga Nasional Berhad Research (TNBR), the R&D centre of Malaysia’s national electricity utility company.

Veolia led the water impact index studies at TNB’s seven thermal power plants managed by TNB in Peninsular Malaysia and TNB.

Clere says it is encouraging to see more companies understand that water is not just a commodity but there are a lot of things such as financial performance, stakeholder engagement involved, he adds.

“This is not just about brand resilience and corporate social responsibility but truly creating shared value” he says. “When they recognise that this sort of financial and risk management sets them apart, they have a real appetite to move forward.” 

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