US$301 billion of business value is at risk from companies that are ignoring their water risks. Responding to those risks costs approximately $55 billion. That ratio ($301 billion in exposure against a $55 billion response cost) is the clearest business case for water management that exists, and it comes entirely from CDP’s corporate disclosure analysis before any environmental benefit is mentioned.
Water is moving from an environmental concern to a financial one, because climate change is making water scarcity and extreme flooding more frequent in more markets. Companies that haven’t assessed their water risk are carrying unpriced exposure on their balance sheets.
The Three Spheres of Water Influence
Business water impact and water risk operate across three distinct domains. Internal operations: direct water use in facilities, manufacturing, and food service. Supply chain: water used to grow, process, and transport inputs, often orders of magnitude larger than operational water use. Basin health: the condition of the watersheds that both the company and the communities around it depend on.
Most retail sustainability programs address only the first sphere: direct operational water use through low-flow fixtures, water-efficient appliances, and leak detection. This is correct as far as it goes and typically produces 10-30% operational water reductions. But for companies with significant agricultural inputs (food, textiles, beverages), the supply chain water footprint dwarfs operational water use.
Trucost’s Water Metric provides a way to assess the true cost of water use (incorporating scarcity, quality, and regulatory risk by location) rather than treating all water as having the same value regardless of where it’s taken from.
L’Oréal, Unilever, and What Best Practice Looks Like
L’Oréal has developed waterloop factories that recycle water used in production rather than discharging and drawing fresh water. Unilever developed no-rinse shampoo formulations specifically to eliminate the largest water use in their product lifecycle: customer washing. Both companies recognized that the majority of their products’ water footprint occurs in customer use, not in their manufacturing operations.
This “use phase” insight is worth applying more broadly: for products where customer behavior drives most of the lifecycle water (or energy) impact, product design that changes that behavior is more impactful than any manufacturing efficiency improvement.
Companies that have reduced water withdrawals through these innovations have also reduced costs: water, energy for water heating, and wastewater treatment costs fall together.
The most important water management insight for most retail companies is that their supply chain water risk is larger than their operational water risk. You cannot address your total water impact by installing low-flow faucets in your stores. You have to engage your suppliers.
Water Conservation as Infrastructure
The Reduce-Reuse-Recycle hierarchy applies to water as well as materials. Source reduction (using less water) through efficient fixtures, processes, and product designs. Reuse (using water multiple times before discharge) through recycling systems like L’Oréal’s waterloop. Recovery (extracting value from wastewater) through nutrient recovery or energy generation from organic matter.
For retail operations with food service or manufacturing: biological wastewater treatment can recover nutrients (nitrogen and phosphorus) that have market value as fertilizers. Energy from organic waste streams (biogas from food waste) can offset heating or electricity costs. These are revenue-generating or cost-offsetting extensions of a water management program, not just compliance exercises.
P.S. The CDP Water Security questionnaire (which companies voluntarily complete and submit for investor review) provides the most standardized framework currently available for assessing and communicating water risk. Worth reviewing before designing any water management reporting program.