Lloyd’s Report: Water scarcity a threat to business

“Catastrophic global water shortage is a greater global risk than soaring food prices and exhaustion of energy reserves during the 21st century.” This is not the voice of left or right (political) activism. This is not the agenda of this or that research group. This is the voice of sober (British) business thinking, emanating from the well-known Lloyd’s insurance group in a 360 Risk Insight report issued April 26th, Global Water Scarcity – Risks and Challenges for Business.

The scarcity of usable water and the growing water shortage, though at points related to global warming, is a separate issue. It should rank with the effects of peak oil as the top issues for the future of the world economy. Unfortunately, neither peak oil nor water shortage has sustained discussion from the world’s public media. There is a real danger that the economic effects, which are already being felt and will increase dramatically in the next twenty years (or less), will come as something of a ‘surprise’ to the public and even to the businesses that depend on water and oil.

One of the messages of the Lloyds report is that businesses routinely underestimate their dependence on a reliable and relatively inexpensive supply of huge volumes of water. There are many figures used for illustration: A chunk of cheese requires more than 2,500 liters (660 gallons) to produce it; a loaf of bread needs 440 liters (116 gallons). Water flows into, through, and out of most manufacturing processes – often in huge quantities. As a rule, this water needs to be fresh, that is, not dirty or sea-water. Yet only 3% of the world’s water is fresh, and less than 1% is available for human consumption (potable water). This water is unevenly distributed with neither deserts nor rain-forests having large human populations, but rather the modestly water-endowed middle regions having the greatest need. This is particularly true for most of Asia, where huge populations have already begun to vie for access to relatively scarce water resources. These are also the areas of Asia (China, India, Vietnam, Thailand, South Korea, Singapore, Malaysia) with the most dramatic economic growth.

The Lloyds report outlines four key points:

1. Global water resources are under threat and businesses are affected. Companies are facing a physical shortage of water, which in turn, will lead to new regulatory and operational consequences. Water is, perhaps, the world’s ultimate shared resource. (A good line.)
2. Different types of businesses face different threat levels. Agriculture and beverage industries are obviously affected, but they are not alone.
3. Water is different than other natural resources – it needs to be managed on a local, basin or national scale. The supply of water is in constant change, drought one day, flood the next, and different year to year everywhere and anywhere. Business strategies need to look to wide geographical considerations to deal with water shortage.
4. Tools and approaches for managing business risk from water scarcity are already being developed. Water shortage is being taken seriously by many organizations – the U.N., World Wildlife Federation, World Economic Forum, the Nature Conservancy, and many others are engaged in discussing, studying, and devising strategies. Join them.

For individuals, it doesn’t take much imagination to understand that if business is affected dramatically by water shortage, so is employment. Right now businesses relocate mostly to cut labor costs or taxes. In the not so distant future, some will be moving to find adequate water.

Of course, there will be many who just add this to their list of ‘impending crises,’ which don’t need to be taken seriously until the crisis happens. Good luck with that.

Lloyd’s CEO Richard Ward said the report highlights the seriousness of the issue for insurers and the wider business market.

“This report is not simply for the insurance market, or solely concerned with the physical risks of too much, or too little water. It covers a wide variety of issues relating to water use for today’s risk manager. How confident are you in your ability to maintain a steady supply of water? Could the record of your suppliers on water management damage your brand or reputation? What new regulations could be imposed on how your company manages water.”

[Source: Lloyd’s Report]

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