Are we Feeding Ourselves Thirsty?
As senior director of water programs at Ceres, a nonprofit sustainability organization, growing water scarcity is top of mind for me.
But, I’m not alone.
Last spring, I took a closer look at how 37 major food companies are tackling the growing challenge of water scarcity. The study, called “Feeding Ourselves Thirsty,” compared water use, stewardship and policies across each company.
I led the research study with the aim of identifying the water-related financial risks facing these food companies – and highlighting the steps they can take to prepare for a water-constrained future.
We set a high bar in our evaluation. Scores were calculated based on 100 possible points, which assessed each company’s overall corporate governance and management of water risk; and actions to reduce water risks and impacts across the value chain.
The highest ranked company – Unilever – received a score of 70 points with Nestle and General Mills not far behind.
Growing water woes
Water is an economic imperative and yet clean water supplies are diminishing around the world. The World Economic Forum recently identified water crises as the most significant long-term threat to the global economy. In addition, new NASA satellite data show that the world’s largest underground aquifers are being depleted at alarming rates.
In the U.S., a recent study by the University of Illinois found that the rapid depletion of the country’s most tapped aquifers – California’s Central Valley Aquifer, the High Plains Aquifer, and the Mississippi Embayment Aquifer – could impact long term food security in the U.S. and around the world.
Climate change and exploding population growth will worsen this trend of diminishing freshwater resources, as will pollution of surface waters, which is on the rise around the world, with fertilizer run-off from farms a major contributor.
Food production: A thirsty business
This all matters because – from farm to factory – food production is the most water-intensive business on the planet. For example, agriculture alone uses approximately 70 percent of freshwater supplies worldwide.
If left unaddressed, pressures on water mean increased financial risk long-term for food companies – such as potential disruption of operations and higher water rates; more costly agricultural inputs; constraints on growth that arise from water shortages; and loss of social license to operate.
Feeding Ourselves Thirsty
While some food companies are taking steps to improve water efficiency and quality from farm to fork to landfill, there is more work to be done.
Not sure where to start?
Here are a few tips:
1) Increase board oversight and understanding of material water risks.
It starts with good governance. Board charters should include explicit mention of water and management should regularly brief board members on water-related risks.
2) Conduct robust water risk analysis.
As the adage goes, “what gets measured, gets managed.” Some companies, like General Mills, Unilever and Coca-Cola work with outside experts like The Nature Conservancy to assess water risks across their direct operations and supply chains. Companies will then use hard data to develop long-term risk management strategies.
It’s important to consider all risks, including physical risks from water scarcity and water quality, regulatory risks and possible brand or reputational risks.
3) Tackle water risks and impacts in agricultural supply chains.
Traditional risk management approaches for agricultural procurement – such as hedging and geographical diversification – are becoming less effective in a water-constrained world. Companies can achieve more by engaging directly with their supply chains to strengthen on-farm practices and increase resilience.
Setting time-bound sustainable sourcing goals, as General Mills has done for its 10 priority ingredients, is a key step.
4) Address watershed-level risks.
Achieving best-in-class water use efficiency may not be enough if the water sources your company depends on are mismanaged. Working collaboratively with others at the watershed level can also yield lower-cost, higher-return opportunities for preserving water resources.
Coca-Cola, PepsiCo, Molson Coors and General Mills have each developed collaborative watershed protection plans that are linked to regions with high water risk. General Mills also provides agronomic and financial support to some farmers and is developing watershed stewardship plans for high water risk sourcing regions.
5) Improve disclosure.
Disclose to your shareholders your company’s exposure to water risk, as well as strategies and progress made in mitigating such risks. As much as possible, report your data at the facility or regional level.
For companies like General Mills and others that are making progress toward reducing and conserving water, it’s important to remember that there is always more to be done.
For truly robust performance consider further opportunities like:
- Tie sustainability performance to variable compensation for key executives. This might seem unusual, but increasingly it’s not. Campbell Soup, Dean Foods, Molson Coors and Unilever all offer explicit financial incentives to CEOs and executive officers when their companies’ meet water and other sustainability-related objectives.
- Set and disclose clearer performance measures for your sustainable sourcing goals. Setting time-bound goals for sustainable sourcing of key ingredients shows real leadership. The next step, however, is to set and report against environmental improvement targets for your agricultural supply chain, particularly with respect to irrigation and fertilizer use.
- Support water policy initiatives that ensure sustainable water supplies for agriculture. To really make a difference, become more engaged with policymakers in supporting key policy initiatives that will protect water in the regions where you operate and source.
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