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What’s going on?

There are several water reporting frameworks deployed across the private and public sector to support sustainability decisions and water replenishment goals. Some of these are tied to a specific mission, such as the United Nations Sustainable Development Goals (e.g., CEO Water Mandate), some were developed for risk identification and management purposes (e.g., Task Force on Climate-Related Disclosures), and some have grown out of the demand for transparency related to environmental impact and sustainability (e.g., Global Reporting Initiative). Given the increased corporate focus on environmental and social governance (ESG) reporting, the myriad of frameworks and associated metrics make common action difficult.

Many companies following the various frameworks employ a stewardship aspect to their water programs. The most common approach is to invest in projects that replenish the water consumed in their operations, typically on a one-for-one basis, allowing companies to track and demonstrate progress. However, it does not measure the impact of the replenishment investment on watershed health, nor does it capture the stacked or secondary benefits of nature-based solutions. Will Sarni, CEO of Water Foundry, recently wrote a piece published by the World Economic Forum (WEF), titled, “We need to rethink ESG to ensure access to water and sanitation for all.” In this piece, he writes that “…consolidation in reporting frameworks is essential to align reporting metrics, dramatically reduce the reporting burden on companies and facilitate adoption of reporting in investment risk evaluations.” Similarly, we expect a continued drive towards consolidation of water management frameworks and a broadening of watershed health investments.

An example of consolidation

In late 2020, the WEF International Business Council (IBC), in collaboration with the “Big 4” accounting consultancies, released a white paper that established cross-industry reporting guidance for ESG and metrics for tracking progress. The paper, “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation,” includes 21 core and 34 expanded reporting metrics. The stakeholder capitalism reporting metrics attempt to harmonize different reporting frameworks, such as the Climate Disclosure Project (CDP), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), and Sustainability Accounting Standards Board (SASB).

The metrics are organized under four pillars: Principles of Governance, People, Planet, and Prosperity. One of the key themes under the Planet pillar is Freshwater Availability and includes the following core reporting metrics:

  • Volume of water withdrawn (and percentage of total) in regions with high or extremely high baseline water stress.
  • Volume of water consumed (and percentage of total) in regions with high or extremely high baseline water stress.
  • Estimate and report the same information for the full value chain, where appropriate.

At the 2021 World Economic Forum annual meeting in Davos, Switzerland, over 60 companies committed to reporting on the core metrics. These companies represent a cross-section of the private sector ranging from Bank of America, to IBM, to Nestlé. Since the meeting in January 2021, additional companies around the world have continued to commit to the core metrics. Based on the list of committed companies across all sectors, and the integration and/or pledges of support from other sustainability organizations, it is clear that companies want a consolidated non-financial reporting structure that harmonizes various frameworks and reduces the reporting load. While the stakeholder capitalism metrics represent one of the first attempts to consolidate, it will likely be one step in an ongoing evolution.

Transformation vs. transaction

The desire to track progress drives most water stewardship investments towards funding projects that directly replenish water in the watershed. These investments are typically transactional, and the projects are often limited to those where the replenishment volume is easily defined. From this standpoint, reserving water rights, removing thirsty invasive species, and implementing aquifer storage and recharge in a watershed are all treated in an equivalent manner if they provide the same replenishment volume. However, each of these may have greatly varied impacts on watershed health, depending upon the true watershed stressors (e.g., surface water quality, groundwater subsidence, equitable access, etc.). There is a growing desire from both corporate teams and non-governmental organizations (NGOs) to better define methods for measuring the impact of these investments in a watershed.

In August 2021, a joint effort by The Nature Conservancy and ABInBev produced “Measuring and Evaluating the Impact of Corporate Watershed Projects.” This guidance documents how companies can engage in monitoring of stewardship projects to demonstrate measurable impacts to the watershed beyond one-for-one water replenishment. It also provides recommendations for developing project/investment performance indicators. In addition, a team led by the CEO Water Mandate and Pacific Institute released the 2021 guide, “Benefit Accounting of Nature-Based Solutions for Watersheds” providing methods for calculating the benefit of nature-based solutions to watershed parameters including water quantity and water quality. Both of these guides are examples of progress in revolutionizing and expanding the opportunities for watershed health investments.

In tandem with the evolution of water stewardship investments, watersheds are realizing the benefit of products associated with certain industries. The impact of these products or product investments should be accounted for in ESG programs; however, methods for improving this accounting are still in progress. Here are two very different examples where the products themselves have a positive net impact:

Cloud-based Environmental Tools. Many cloud and web services companies have developed cloud-based data analytics and modeling platforms that have had a measurable impact on the environment and watersheds by improving data collection, decision making, and resource management. One example is Microsoft’s AI for Earth program that has delivered tools such FarmBeats which allows for precision irrigation, thus preventing waste. Other examples include Amazon’s Sustainability Data Initiative and Google’s Cloud AI.

Smart Leak Detection. With the rise of the internet of things (IoT) and connected devices, many companies have developed sensors that provide real time data at a reasonable or low cost. One such area benefitting the water industry is leak detection – including both residential- and utility-scale. Companies that produce connected smart leak detection devices would be treated as equivalent to all manufacturing operations under current frameworks. However, the positive impact on a watershed is directly measured as reduced water consumption associated with leaks.

What will the future hold?

As water stewardship frameworks evolve, we anticipate positive changes including standardization and the ability to account for the inherent health benefits of products and their impact on communities within the watershed.

A consolidated and harmonized reporting framework. Such a framework would include common reporting metrics, used across industrial sectors. The framework would be endorsed by major environmental/water platforms and NGOs. The metrics would allow for common tracking of improvements against a baseline.

Watershed health accounting improvements. As stewardship programs focus on transforming watershed health impact versus transaction replenishment, methods for assessing the impact of investments will be adopted. This will likely result in the expansion of watershed health investment opportunities, as well as more opportunities to benefit the communities within the watershed.

               

 

Part 2 of The Coming Revolution in Water Stewardship series will include:

  • The need for a watershed investment project marketplace.
  • Is there space for a water replenishment bank and credit system?
  • Municipalities and utilities – an underutilized source of watershed health and replenishment projects.

 

About the experts

Thomas Steinwinder leads Brown and Caldwell’s team focused on data center and mission critical water. He has led due diligence and infrastructure projects for hyperscale data center clusters in all regions of the USA. The evolution of water risk management and stewardship programs is a major focus for the data center water team.

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