Tackling Water Insecurity--How can big business create Shared Value?

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Water Insecurity

Water scarcity has become a pressing problem due to a growing world population that has put increased strains on a limited resource (Famiglietti, 2014). Climate change has further exacerbated the problem, with the growing unpredictability of forecasting extreme weather events. In addition, the aqua is deeply interlocked in the water-energy-food nexus, where ripples reverberate throughout the system, when any one factor is perturbed. The water question has gained increased limelight and inadvertently been shone on revenue-generating companies and their role on water usage. Recently, the CDP Global Water Report 2014 has highlighted that more and more companies have put water availability as a strategic risk (Carbon Disclosure Project [CDP], 2014). This is not without exemplification of events that affected the operations of these corporate entities (Clark, 2014). In 2003, Coca-Cola has one of their bottling plants closed, due to complaints from villagers about excessive usage. The mining industry, which uses high volumes of water, was also ground to a halt in Peru by farmers who took issues with their water usage. These have led to gaining traction amongst companies to reflect on their roles and responsibilities with utilizing water as a resource. In this discourse, we raise the role of the corporate responsibilities in water management issues and how it can create shared value.

Actions and Intentions of Big Business

The capitalist view of the business of old is in maximizing share value of the investors. This takes a narrow short-term view of the company and their actions, as they attempt to optimize short-term financial returns. Disparity between the two markets that businesses has to manage led to fault lines, one of “expectation market” and the other of the customer centric market, where products and services are developed and one that of longer hauls are needed (Leavy, 2012). Hence, there is a misalignment between the stakeholders’ and the shareholders’ view on the business’s position.

This calls for a stepwise approach, where a focus on stakeholders takes precedence before focusing on maximizing shareholder’s value. The refocus of the strategic intent on the stakeholders with the likes of customers, employees and communities  lead us to the concept of operating total shareholder return, a system where true value creation led by increased sales, efficiency and in turn generating greater profits. Such a customer centric market, represents a tangible market instead of an expectation centric one, which could be optimized by the management, and not merely guided by market sentiments. A reconciliation of between business and society, brings together a new model towards development of a revitalized definition of capitalism, albeit one with a social purpose.

Corporate Strategy Concept of Shared Value

What is shared value?

Shared value is an idea that sees economic improvement to be inextricably linked to societal progress, having the potential to unlock wells of innovation and productivity. The better connectivity between business’s success and societal improvement creates new portals to meet new needs, increase productivity, allows for differentiation of products and diversify markets.

 

Why corporate shared value fits the bill?

Creating shared value expands the scope of the corporation, beyond the mere definition of profits. It also results in true value creation for both stakeholders and shareholders, rather than a redistribution of resources, which often comes at the cost of the stakeholders at the community level. The model builds economic value in a manner that it also creates value for the society by addressing its needs and concerns. This reaffirms the notion that the company can succeed together with social progress. A continued validation for the business entity amongst society can then be made possible.

Shared value (Porter & Kramer, 2011) can be created by:

  1. Redefining products and markets, by prioritizing societal needs.
  2. Increasing efficiency in the value chain.
  3. Developing of local cluster groups, that are also better equipped to support industries at the company’s location.

Corporate behavior and water stewardship

Water stewardship for business is a progression of increased improvement of water use and a reduction in the water-related impacts of internal and value chain operations, allowing for responsible, sustainable management of freshwater resources (WWF, 2013). Companies often view water regulations as externalities that they have to manage, posing as obstacles as they attempt to maximize profits. The gradual shift to corporate social responsibility programs has demonstrated limited impact due to its inherent niched agenda. In the next phase, creation of shared value demonstrates itself not to be just a case of philanthropy. The capacity building creates new capabilities and possibilities in the localities. Below, we showcase how the reinterpretation of products and markets by prioritizing societal needs, recharting value chains and productivity and the development of local cluster chains serve to create shared value in water stewardship.

Scheme 1. Water stewardship: Transformation of a corporate entity from reactionary to progressive policies before allowing for capacity building and welcoming the creation of shared value.

Companies must comprehend that the value of water use has both an intrinsic and a socio-economic value (Rogers, Bhatia & Huber, 1998). This is compared to just a few decades ago, where water has been falsely treated as an unlimited free commodity. The intrinsic value of water, has much of its derivation from the statement of human rights, where every man should have an equal right to access water (U.N. General Assembly Resolution A/RES/64/292, 2010). This exhibits the human’s innate link with water, who shares an intimate bond with it and ultimately requiring it to survive. For example, WaterHealth International, a for-profit company in the water distribution business, has been purifying water using technologically intensive pathways and selling purified water at minimal cost to more than 1 million people in rural areas of Asia and Africa, which allows for economies of scale. There have been other peripheral factors, such as the operations of the company and the corresponding effects on water resources, which should also not affect the livelihood of the locals. The economic value of water should also be reflected in its monetary value. The company must pay a justified price for the water that it uses, with due consideration of the returning hydrological flows in the system and the net benefits it can bring to the communities.

The water factor should be internalized within the company’s directives. Operation of a company should consider the geo-political and social situation, where they conduct their activities (Global Water Intelligence, 2013). Disregarding this will be equivalent of overlooking one of the key factors, as quite often, high volumes of water are needed for big companies to function. Any obstacles and risk to the access of water will lead to a reduction of operations, which may result in negative financial repercussions. Water scarcity events have been highly localized, occurring at specific regions of the world. Thus, due diligence should be put into these risk assessments. The internalization process of water considerations makes good sense, as it generates positive feedback from possible consumers, earns it a good credit rating and a clean reputation. A good example is in Coca Cola, where the advent of technology and greater advocacy for environmental protection has led to better utilization of resources. The company managed to reduce worldwide water consumption by 9% in 2011 from a 2004 baseline. This decrease translates into savings throughout the value chain and also eventually to suppliers and channels. By reducing the consumption of water, societal problems that may lead to economic cost can be obviated.

Companies should foresee themselves as multipliers of change, particularly in regions impoverished in water resources (World Economic Forum, 2012; 2030 Water Resources Group, 2008). Operations and interactions with the locals, could help to spread the message of reducing unnecessary water usage and advocate best water practices amongst employees. Through this engagement, the increases in water efficiency and conservation efforts are not limited within the four walls, but will eventually diffuse into the localities. The dissipation of information and education to the communities build trust and understanding between the company and the locals regarding the corporate water policy too.

While, not within the context of this discussion, the regulatory boards plays a determining role on deciding the fate of water scarcity (Public Utilities Board, Singapore, 2012; U.S. Environmental Protection Agency, 2007; Benito et al., 2009). The cards are on the hands of the government, as they are whom that can determine policies on water usage and efficient use of it. The management of the scarce water resource, may partake onto unpopular steps, such as water pricings, which the regulators will have to navigate with due consideration from the people’s standpoints. In the long run, these moves are needed for the efficient usage and conservation of water.

To conclude, there has been a realization that the corporate entity plays a starring role in the management of water resources, where they are too a key stakeholder, who need water to develop their products. Companies must comprehend the true value of water, internalize water as a factor in their directives and see themselves as catalysts of change that can affect water issues. Participations from other parties that have stakes on water as a commodity, such as communities and the regulatory boards, play an instrumental role too. This is needed to develop a wholesome approach in managing our precious water resource. The management of water scarcity issues requires the full involvement of every party to allow for foreseeable solutions in the future.

 

 

 

References: 

References

Famiglietti, J. S. (2014). The global groundwater crisis. Nature Climate Change, 4, 945-948.

Carbon Disclosure Project [CDP] (2014). CDP’s Global Water Report 2014. Retrieved from https://www.cdp.net/water (Extracted 23/12/2014)

Clark, P. (2014) A world without water. Retrieved from http://www.ft.com/intl/cms/s/2/8e42bdc8-0838-11e4-9afc-00144feab7de.html... (Extracted 23/12/2014)

Leavy, B. (2012). Getting back to what matters–creating long-term economic and social value. Strategy & Leadership, 40(4), 12-20.

Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62-77.

World Wildlife Fund [WWF] (2013) Water Stewardship 2013 Brief: Perspectives on business risks and responses to water challenges. Retrieved from http://awsassets.panda.org/downloads/ws_briefing_booklet_lr_spreads.pdf (Extracted 02/01/2015)

Rogers, P., Bhatia, R., & Huber A. (1998) Water as a social and economic good: How to put the principle into practice. Stockholm, Sweden: Global Water Partnership/Swedish International Development Cooperation Agency.

United Nations General Assembly Resolution 64/292. (2010) The human right to water and sanitation. Retrieved from http://www.un.org/en/ga/64/resolutions.shtml (Extracted 23/12/2014)

World Economic Forum (2012) Managing Our Future: Water Needs for Agriculture, Industry, Human Health and the Environment. Retrieved from http://www.weforum.org/issues/water (Extracted 23/12/2014)

2030 Water Resources Group (2008) Expanding our Horizons: Water Security Partnerships for People, Growth and the Environment, 2013 Annual Report. Retrieved from http://www.2030wrg.org/knowledge-tools/ (Extracted 23/12/2014)

Public Utilities Board, Singapore (2012) Singapore Standard SS 577:2012 – Water Efficiency Management System. Retrieved from http://www.pub.gov.sg/conserve/Pages/SgStdSS5772012_WEMS.aspx (Extracted 23/12/2014)

U.S. Environmental Protection Agency (2007) Federal Water Efficiency Requirements. Retrieved from http://www.epa.gov/greeningepa/water/requirements.htm (Extracted 23/12/2014)

Benito, P., Mudgal, S., Dias, D., Jean-Baptiste, V., Kong, M. A., Inman, D., & Muro, M. (2009) Water Efficiency Standards. Bio Intelligence Service and Cranfield University, Report for European Commission (DG Environment). Retrieved from http://ec.europa.eu/environment/water/quantity/pdf/Water%20efficiency%20... (Extracted 23/12/2014)