September 12, 2007
Businesses and Water Shortages: A Drought of Risk Management
by Anne Moore Odell
The Marsh Center for Risk Insights' new survey reports that although most businesses are aware of
the risks of water shortages, most businesses don't have a risk management plan in place.
"It's raining it's pouring, the old man is snoring . . . " goes the old nursery rhyme. However, the
"old man" in this case is the business community that is asleep over the consequences of not
considering long-term water issues. A report from the newly launched Marsh Center for Risk Insights states that less than 20% of Fortune
1000 companies surveyed are prepared for a water shortage crisis.
The Marsh Center for Risk Insights was created
by Marsh Inc., a large US insurance broker
and risk advisor with 395 offices in 85 countries. The Marsh Center was developed as a think tank
to analyze important global business risks. Their new survey polled senior officials from over 100
Fortune 1000 companies. Public Opinion
Strategies, headquartered in Alexandria, VA, conducted the telephone survey.
founding advisors for the Marsh Center are heavily politically conservative, but with profound
experiences in a number of different governmental, academic and business backgrounds. They include
Dean Alexander, Philip Armstrong, Carol Browner, Dr. Sheikh Faisal F.J. Althani, Dr. Rohan
Gunaratna, Dr. Howard Kunreuther, Harvey Pitt, and Andrew Winston.
Water shortage was
singled as one of the most looming threats for companies in the near future. Forty percent of those
surveyed believed that a water shortage would be severe or catastrophic for their business
operations. Companies across industrial sectors could be affected by water shortage issues directly
and indirectly through their supply chains, with even non-water intensive companies realizing
higher costs as suppliers deliver higher costs. The Marsh Center reports that water-related costs
are rising with manufacturers paying to treat both source water and wastewater.
change will most likely exacerbate this trend, so that intense, longer droughts like those we've
experienced in the American West and in southern Europe will become more common," said Neal
McGarity, Senior Vice President Corporate Communications for Marsh. "Meanwhile, the global demand
for water is increasing. The point is that companies need to plan now for the impact of water
shortages on their business operations."
Although nearly half of businesses surveyed
replied that water was important for daily operations, only 6% responded that in the next five to
ten years there would be significantly less access to water. This belief that the water will be
available for companies in the short term is not necessarily based on risk management analysis.
In August, the World Business Council for Sustainable Development (WBCSD) held a "World Water Week" conference in Stockholm, Sweden.
Some of the conclusions from the meetings are that businesses need to include shareholders, local
residents, governments, and other stakeholders in discussions about water. Furthermore, businesses
need to seriously study their assumptions around water usage. WBCSD also points out the need for
more accurate and complete water data to enable companies to better focus their water management
"For most companies, water does not appear on the bottom line yet. But for many
it may be the biggest risk in the future," said Jürg Gerber, Chief Operating Officer for WBCSD.
"Water has always been seen as 'free from nature' and has not been given its correct value. Water
is also a very complex issue, meaning what seems to be a simple value, like water use at a site, is
actually not so straightforward," he added.
WBCSD has recently launched the Global Water Tool to help
companies map out their water use and assess their risks globally. WBCSD also hopes that it
encourages more companies to put water risk management in place. WBCSD suggests businesses need to
put plans into place now to mitigate the risk of water shortages. Such plans include increasing
efficiency, working with communities and potential global markets, and understanding life cycle of
water used in their products and services.
The Marsh Center survey also asked companies
about seven other potential risk situations besides water shortage, including natural disasters,
terrorist attacks, oil price spikes, global climate change, housing market collapse, risks
associated with nanotechnology, and pandemics. Although the Marsh Center results state there are a
"growing number of threats" to businesses, 44% of those surveyed said that one of the major reasons
they weren't prepared for a crisis is because the risks didn't seem relevant to their businesses.
"The fact that a large segment of senior executives felt in June (when the survey was
conducted) that the housing market did not pose a significant risk--but, as we know from today's
headlines here in September, the risks associated with the housing market is now causing great
concern globally--especially the subprime aspect of mortgage lending," McGarity told
The Marsh Center disagrees with this short-term view of business
operations. Dr. Howard Kunreuther, Marsh Center founding advisor and Co-director of the Risk
Management and Decision Processes Center at the Wharton School, said, "A number of business leaders
today are taking a short term view of risk and operating under the false assumption that even
though these risks are on the horizon, they don't need to act on them promptly. While these
decisions may not affect them in their term of office, it could have dire effects on their
successors and those connected to their companies years later."
Given the nature of the
risks related to water, astute investors and analysts will need to be careful readers of corporate
reports to understand if and how companies consider risk preparations, the Marsh Center notes.
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