As BASF stresses, "the sustainable use of water and the conservation of water resources are… important for our company's future success." It is therefore vital that the chemical industry engages with and understands the implications of water for their business. Because water-related risks extend beyond direct operations, the chemical industry should strive to understand their risk exposure across their entire value chain.
The supply chain features frequently as a significant source of risk among Global 500 companies. However, only 15% of chemical industry respondents report that water-related risks within their supply chain have the potential to substantively impact their business. Nonetheless, 50% of the identified risks, including reputational damage, increased water stress/scarcity and flooding, are anticipated to impact businesses now or in the next five years.
Of those companies noting they aren't exposed to supply chain risks, the majority, including Dow, DuPont and Potash, explain that their strategy of multiple-sourcing enables them to circumvent any risks. Other firms, such as Air Liquide, Ecolab and Syngenta, rely on supplier engagement to mitigate risks.
Worryingly, however, over a third (35%) of respondents are unable to state whether or not they are exposed to risks across their supply chain. Many cite the sheer number of suppliers as a barrier to understanding these risks; others report they traditionally have focused on risks across direct operations but are in the process of broadening their analyses to cover supply chains.
Encouragingly, respondents are taking steps to address the uncertainty around supply chain risks, with 35% requiring key suppliers to report their water use, risks and management. It is recommended that other chemical companies consider engaging their key suppliers on water-related issues.
Water-related issues present substantive opportunities for their business say 80% of chemical industry respondents, a level somewhat higher than the Global 500 average (71%). These companies report a total of 43 opportunities — including creating new sales, enhancing brand value and saving costs (Figure 2) — all of which are expected to materialize within the next five years. To capitalize on these opportunities, many companies pursue water stewardship strategies that not only build business resilience, but also turn risk management responses into a source of competitive advantage.
Half of the respondents, including Akzo Nobel, Israel Chemicals and Air Products & Chemicals, foresee sales of new water-related products and services across diverse markets ranging from consumers to a variety of industrial sectors. The market should grow fastest in areas lacking access to safe drinking water and sanitation, as well as those expecting greater impacts from climate change, where water efficiency, recycling and reuse are expected to become increasingly important.
"Adaptation to resource scarcity is an emerging challenge for our customers, especially in high-growth markets like China, India, Brazil and the Middle East. By recognizing the potential for water reuse, we can help our customers increase their capacity with less risk of competing for already scare resources," notes Ecolab.
BASF, for one, provides a range of products to meet current and future water needs in terms of production, use and purification. The company estimates these products have the potential to generate more than €800 million ($1 trillion) in sales through 2020.
A number of respondents cite the cost implications of the research and development, regulatory and marketing resources required to develop, test, market and sell new products and services. However, they also note the benefits include significant opportunities to increase their market share as a result of newly developed technologies.
A clear and urgent need exists for the chemical industry to develop effective management responses to water-related issues. Not surprisingly, companies are focusing most on their direct operations rather than on aspects that might better address some of the underlying issues related to water scarcity, such as community engagement or watershed management (Figure 3). Almost all have developed water policies (Figure 4). All are able to report their water withdrawals and nearly all can identify their discharges. However, only 45% have established specific water-related targets or goals. This is much lower than expected considering the proportion of companies that have already experienced water-related negative business impacts.
Moreover, many of these targets focus on the efficient use of water (recycle and re-use) and reducing water consumption in general rather than on water quality management. This is surprising considering one of the risks chemical industry respondents most frequently cite is increasing regulation of discharge quality.