Water shortages pose growing risk for American companies

Some of the best known companies in the US are taking water supplies into account when deciding where to locate their facilities amid growing concern about a resource long taken for granted.

AT&T, the telecommunications giant, and Hershey, one of the world’s largest confectionery makers, are among those taking such steps as California confronts a prolonged drought and other markets confront stressed water supplies.

“I think water is becoming the next big issue,” said John Schulz, assistant vice-president of sustainability operations at AT&T. “There is a rising awareness from a business risk perspective that if we don’t start getting control of this, it could become a real business-impacting issue.”

Water availability has not yet stopped the company building anywhere, Mr Schulz said, but it is a criterion used when deciding where to locate its facilities.

Hershey uses the same criterion, but mostly when looking at facilities abroad, said Todd H. Camp, the company’s senior director for corporate social responsibility.

“One of our key goals is to grow globally and while our plants in the US may not really face water scarcity or water stress situations, there are certainly facilities outside the US that either are on the brink of facing those, such as in Mexico and India, or based on the most credible projections we follow, will in future,” he said.

The two companies have been identified in research that shows some US businesses believe water risks are likely to affect profits and growth in the next five years.

The report was done by California’s Pacific Institute, an environmental research group, and Vox Global, a public affairs firm.

Its authors do not claim their findings reflect a national average as they are only based on 51 companies. However, they point to a growing corporate awareness of water scarcity.

This has grown since Coca-Cola was forced to close a bottling plant nearly a decade ago in the southern Indian state of Kerala, after activists accused it of depleting the local water table.

Since then, both Coca-Cola and its rival, Pepsi, have vowed to do more to conserve the billions of gallons of water critical to their products.

More recently, water shortages have put pressure on the US oil and gas industry, which often operates in dry states and uses large volumes of water for hydraulic fracturing, or fracking.

The Pacific Institute/Vox report found that a majority of companies surveyed said water was already affecting their decisions on where to locate facilities. Nearly 60 per cent said water issues would affect both business growth and profitability in the next five years.

Many have started monitoring and trying to cut their water use recently.

Hershey has sharply reduced its water consumption from more than 4bn gallons a year in 2009 to 1.2bn gallons last year, largely by investing in conservation technology at its flagship plant in Hershey, Pennsylvania and across its manufacturing network, and by making workers more aware of water use.

AT&T found it was using 3.3bn gallons a year of water in 2012, nearly a third of which was used in cooling towers, and has discovered the cost of conserving water can be offset by significant savings.

It says it spent $4,000 upgrading one site’s cooling system that returned savings of nearly $40,000 a year.

Such measures represent a big shift compared with the way companies thought about water a decade ago, said study co-author, Jason Morrison of the Pacific Institute.

“Historically many companies have thought of it as a low-cost input and looked at it mostly within the context of their direct operations,” he said. “Now companies are increasingly thinking about water more broadly.”

Companies also realise poor water use can affect their brand, Mr Morrison said. “Again, a decade ago, companies may not have thought about water and reputational risk in the way they do today,” he said.

FT