You Can't Go Green Without Adding a Little Blue
Two key factors are going to change the way water is managed inside companies: 1) water availability will change as a result of climate change, and 2) water scarcity will become more widespread as world population continues to grow.
These factors will directly impact the availability of water, thereby influencing its cost and the cost of business operations. Water prices rose 27% between 2001 and 2006 and are forecasted to continue to increase, according to the NUS Consulting Group. To compound these issues, some say that population growth will cause water quality to decline from increases in waste and non-point pollution.
Companies are beginning to realize that water, like energy and carbon, should be a key pillar of a corporate sustainability strategy. Both PepsiCo and General Electric have made commitments to reduce water consumption 20% by 2015 and 2012, respectively. Weyerhaeuser, an $8.8B company in the lumber and wood production industry, set a goal to reduce water at its cellulose fibers mills 20% by 2012.
Despite these impressive commitments, few companies are managing water as a strategic resource. More often than not, companies are dealing with water-related issues in a scattershot fashion by focusing on risks associated with water withdrawal, use, and disposal.
Some of the biggest water-related risks companies face are:
- Operational: Changes in water availability or costs could disrupt business operations
- Regulatory: New regulations or lawsuits associated with water use could add to capital costs or restrict operations
- Reputational: Failing to address social concerns associated with water use could prove damaging to a company’s reputation or brand
Developing safeguards for these types of risks can help companies stay off the radar of watchdogs, but they will not offer competitive edge in the market place.
Corporations need to look beyond risk-management when developing sustainability strategies. A successful approach should include defensive (risk-management) provisions as well as offensive strategies that foster growth (innovation and conservation).
Growth Through Competitive Advantage
In order to gain a competitive edge, companies can focus on process and product innovations that deliver cost savings to the company and the consumer through the more efficient use of water. There are three main ways a business can achieve this goal: implementing process efficiency measures, redesigning existing products, and developing new products that enhance environmental performance.
Operational Efficiency: Innovations that reduce water use through elimination, reduction and recycling offer benefits in terms of cost savings, by reducing water, energy, treatment and disposal costs; environmental impact, by reducing pressure on local water supplies; and reputation, by promoting an image as a responsible community member.
These measures can also help preserve a company’s ability to operate in areas that are water-scarce or prone to drought. Water efficiency measures can reduce water and sewer costs by up to 30 percent, but companies are not prioritizing these measures because, simply, water is cheap (compared to the price of energy).
The key to making water efficiency as attractive as energy efficiency is to partner with state and local governments and/or water utilities. There are tremendous incentives for companies to conserve water, especially in water-stressed regions.
Frito-Lay’s manufacturing plant in San Antonio, Texas, is a great example of this. The facility was honored in 2006 by the San Antonio Water System (SAWS) for its focus on water conservation. Together, Frito-Lay and SAWS devised a strategy to reduce the amount of water used per bag of chips produced by more than 50 percent.
In 2003, Frito-Lay initiated a series of water efficiency projects that reduced water consumption by 43 million gallons per year. The project had an estimated payback period of 10.7 years, but with SAWS’s rebate of $264,000, the payback was reduced to 8.8 years. In 2006, Frito-Lay began another project with SAWS and was able to cut water consumption by an additional 20 million gallons per year. Again, SAWS provided a rebate in the amount of $126,400, which cut the payback period from 4.1 years to 2.7 years.
In both cases, the payback did not account for reductions in sewer loading costs, so the estimated payback periods are likely even shorter. Through its partnership with SAWS, the Frito-Lay plant has been able to double its production while keeping water consumption below 2003 levels, as well as enhance its image as a community leader in a region where water resources are scarce.
Product Redesign: Innovations in product design can contribute to significant water savings. Detergent brands, including P&G’s Tide, Unilever’s all small-and-mighty, and Church and Dwight’s Arm & Hammer have developed concentrated liquid laundry detergents that use roughly half as much water in their formulation.
In an effort to drive change across the detergent industry, Wal-Mart recently began selling only concentrated detergents in its U.S. stores. Wal-Mart expects to sell more than 800 million units over the next three years, which will result in a savings of more than 400 million gallons of water, not to mention more than 95 million pounds of plastic resin, 125 million pounds of cardboard, and 520,000 gallons of diesel gasoline from shipping. A focus on product redesign in terms of water can deliver significant reductions in process and material costs.
Water-Efficient Products: Going to market with water efficient products, those that reduce water consumption of the end-user like low-flow showerheads and high efficiency toilets, can boost brand value and result in widespread environmental benefits. In order to make the biggest and fastest impacts, companies should prioritize their efforts in areas where awareness of water issues is high – the places where water resources are most stressed.
Additionally, the U.S. EPA, through its WaterSense program, is partnering with businesses, local governments, utilities, and NGOs to bring water-efficient products to market and spread the word about the need for smart water use. By becoming a partner, companies can use the WaterSense logo to help raise brand awareness for water saving products.
Moreover, many local governments and utilities are promoting WaterSense by offering rebates that make water-efficient products price competitive. By becoming a WaterSense partner and joining in similar local or regional initiatives, a company can increase visibility in the marketplace, stay in step with regulatory codes, and promote the sale of green products.
Developing a Water Management Plan
As water continues to become a more prominent issue, smart companies are developing comprehensive water management plans as part of their overall sustainability strategies. It is important to note that there are some twists – notably geographic differences – that make the development of a strategic water plan more complex than carbon and energy.
Greenhouse gases influence climate change on a global scale – the effects are universal. As such, many companies seek to reduce their carbon footprints through energy efficiency measures, often targeting their most energy intensive operations. This tends to deliver the largest return in terms of cost and environmental impact while also delivering significant reputational benefits.
Water, on the other hand, is a local and time-specific issue, and should be treated as such when a company develops a water management plan. Conserving one unit of water in a water-stressed region has a greater value than the same unit of water in a wet region (and usually a greater cost). Therefore, water conservation measures should be prioritized at facilities located in water-stressed regions such as the southeast and southwest United States, not necessarily at facilities with the highest water consumption.
A good water management plan should include the following components:
1) Regular assessment and goal setting: the impacts and risks associated with water withdrawal, use, and disposal vary by geography; corporations should conduct a comprehensive water footprint, broken down by location and function, and set corresponding reduction goals.
2) Process and product innovation focused on conservation: water efficiency is a tool of conservation; corporations should promote water efficiency in their operations through behavioral changes and best management practices; corporations should also consider strategies for water efficient products and services in water-stressed regions.
3) Partnerships with state and local governments and utilities: state and local governments and water utilities are offering incentives to help companies conserve water; corporations should seek out partnerships in water stressed regions and leverage incentives as a way to maximize the return on implementing water efficiency measures.
In order to maintain a competitive advantage through sustainability, businesses should manage water as a key material resource with social, cultural, environmental, and economic considerations. Fostering partnerships with utilities and government programs is a cost effective way to promote process and product level innovation. Whether it’s expanding the size of your operation without expanding your water footprint or increasing market penetration in water scarce regions, water conservation – a term of prevention and preservation – can stand for growth and opportunity.
Andrew Collier is an Analyst for GreenOrder. A strategy and management consulting firm, GreenOrder helps companies maximize the value of sustainability, making environmental excellence, energy innovation, and corporate responsibility drivers of profitable growth.