”It's tough to know the value of water until it's gone.Mark UdallFormer United States Senator
Historically, water was assumed to be essentially free and abundant, so the amount of water used in business and the public sectors were typically of little concern. Companies and the public sector are now feeling the impacts of water scarcity, and as a result, they are responding to varying degrees. Water scarcity is being driven by population growth and industrial expansion, which are further complicated by the negative effects of climate change such as droughts and extreme weather events. This combination of factors is placing constraints on water access and use even in some geographies where water has historically been abundant.
Benefits of Water
Water has value to every person, business, public sector, water utility, and ecosystem. Placing a value on water is challenging because it is a shared resource and not everyone has the same view of water – both value and values. There are many variables that determine the value of water to a person or business.
From a physical attribute perspective, quantity and quality are the most significant, in part because they dictate how much water is available, and if the water is potable or suitable for other purposes (e.g. irrigation). There are risks with quantity and quality because of the decreasing amount of fresh water and the increasing amount of water pollution due to population growth, climate change, urbanization, and rising incomes (JP Morgan, 2008).
Quantity and quality are the fundamental factors of water management, but if we want to move towards water stewardship strategies, we must look towards “sustainable development’s five dimensions: political, social, economic, environmental, and cultural” (Chelby, 2014). The concept of water as an economic good was developed as part of the lead-up to the Earth Summit in Rio de Janeiro, in 1992. It was extensively discussed during the International Conference on Water and the Environment and was transformed into the Dublin Statement on Water and Sustainable Development (The Dublin Statement on Water and Sustainable Development, 1992). The Dublin Principles were important in identifying the need for integrated water management read as follows:
- Water is a finite, vulnerable, and essential resource that should be managed in an integrated manner.
- Water resources development and management should be based on a participatory approach, involving all relevant stakeholders.
- Women play a central role in the provision, management, and safeguarding of water.
- Water has an economic value in all its competing uses and should be recognized as an economic good.
Importantly, the 2015 Sustainable Development Goals (SDG) now have a goal and metrics dedicated to water (United Nations Sustainable Development Goals: 17 Goals to Transform Our World, 2017). SDG 6 is dedicated to address access to safe drinking water, sanitation and hygiene.
Natural Capital and Ecosystem value
Quantifying the monetary value of water for ecosystem services is a critical consideration when valuing water for the public and private sectors. Global and per-hectare values of ecosystems have been calculated based on the estimation of the indirect values of the aquatic ecosystems in flood control, groundwater recharge, shoreline stabilization and shore protection, nutrition cycling and retentions, water purification, preservation of biodiversity, and recreation and tourism.
Stewardship value stems from a belief (moral or religious) that humans are obligated to preserve some level of water quality, even when there are no withdrawal or instream use benefits. Instead of a responsibility or obligation to keep up water quality, Altruistic value is about the pleasure people receive from knowing that others enjoy withdrawal or instream use benefits. Bequest value is similar to water stewardship value, where there is a belief that existing humans are obligated to keep an acceptable level of water quality to “bequest” to future generations. Lastly, Existence value stems from the satisfaction some have from knowing that an acceptable level of environmental quality exists. Concerning these values, if water quality declines, then stewardship, bequest, and existence objectives may not be met, while related benefits fall (Dumas, Schuhmann and Whitehead, 2005).
Spiritual and Cultural Value
While a special economic good and the above guidelines get us further along in valuing water, we should be mindful that water also has a cultural dimension. It would be challenging to quantify the spiritual value of water, however, all of the major religions of the world, Buddhism, Christianity, Hinduism, and Islam, place a significant spiritual value on water (Groenfeldt, D. Water Ethics: A Values Approach to Solving the Water Crisis. Earthscan, 2014).
For example, in Buddhist funerals, water is poured until overflowing into a bowl placed in front of monks and the deceased. In Christianity, water is used in baptism and washing, which symbolizes purification and cleansing. Hindus believe all water, especially rivers, are sacred because it is also believed to have cleansing properties and is used to reach physical and spiritual purity. With this important value placed on water, it is a necessary element in almost all rites and ceremonies for Hinduism. In Islam, water is recognized as the origin of all life on Earth, as the substance from which God created man, and as a sustaining and purifying resource.
To disregard as unquantifiable, the spiritual value of water when considering the overall value of water would be to disregard centuries of tradition and ritual as applied by more than half of the global population.
Business-Risk-Based View of Value
Water, just like all resources, has value that varies depending on its use or non-use. However, water risk for businesses are typically framed as having three dimensions of risk – physical, regulatory and reputational. Many businesses face these three types of risks that disrupt business continuity. Physical risks arise from quantity and quality issues. The issues are fairly straightforward, too little water (scarcity), too much water (flooding), or poor quality water. The causes of these risks are not as straightforward and are a combination of problems – over-allocation, droughts, or natural disasters. Physical risk impacts businesses across their value chain – upstream supply chain, operations and in some cases product use. For many businesses poor water quality can also represent a risk, such as in the semiconductor manufacturing sector, which requires ultra-pure water for production.
These water risks translate into financial impacts. There are three “principal channels” through which risks surrounding water scarcity or pollution can affect financial performance, financial losses, higher costs, and delayed or suppressed growth. Financial losses arise from revenue lost because of a slowed production process (JPMorgan, 2008). A lack of water or quality of water could cause a business to lose profits because they are not able to produce as much as they would have with high quality water. One problem with financial loss could result from reputational risk due to a negative public sentiment to a business, which causes people to stop buying the product.
The last channel affecting financial performance is delayed or suppressed growth due to intensifying competition for water. Lack of quantity and/or quality is an imminent threat to business operations because people need water along with other businesses. For example, if a business is in an area that is under severe drought (physical risk) the regulation will hopefully allocate water towards people who need the water because health is the number-one priority when it comes to water shortage or water quality decline.
- Chelby, J. (2014). The Value of Water Economics of Water for a Sustainable Use. The Economic
and Social Review, [online] 45(2), pp.207-222. Available here.
- Dumas, C., Schuhmann, P. and Whitehead, J. (2005). Measuring the Economic Benefits of Water
Quality Improvement with Benefit Transfer: An Introduction for Noneconomists. American
Fisheries Society Symposium. [online] Available here.
- The Dublin Statement on Water and Sustainable Development. (1992). In: International
Conference on Water and the Environment. [online] United Nations. Available here.
- Groenfeldt, D. (2014) Water Ethics: A Values Approach to Solving the Water Crisis. (Earthscan).
- JP Morgan (2008). Watching Water: A Guide to Evaluating Corporate Risks in a Thirsty World.
Global Equity Research. [online] Available here.
- United Nations Sustainable Development Goals: 17 Goals to Transform Our World. (2017). Goal
6: Ensure Access to Water and Sanitation for All. [online] Available here.