Water as a shared challenge: From societal expectations to collective action Deloitte Review Issue 16

Water issues now make headlines on a regular basis. In 2014, in the United States alone, water-related challenges have included a drought in California; the overexploitation of the Ogallala aquifer, which underlies eight Great Plains states; and a tap water ban in Ohio that disrupted the lives of hundreds of thousands of people.^1,2,3 When these challenges arise in a country with an extensive and reliable water utility infrastructure, an understanding of the importance of clean water, and an awareness of the importance of environmental regulations around water supply, it is no surprise that water issues are even greater when viewed on a global scale.

Water withdrawals are predicted to increase by approximately 50 percent in developing countries and 18 percent in developed countries by 2025, leading to increased local competition for water.⁴ One crucial and increasing use of water is for agriculture, which accounts for more than 70 percent of all water withdrawals today.⁵ Yet the supply of water for other uses, including drinking and sanitation, is under strain as well. Nearly 780 million people worldwide lack access to safe water, and 2.5 billion people do not have access to adequate sanitation, according to the World Health Organization (WHO)/United Nations International Children’s Emergency Fund (UNICEF) Joint Monitoring Programme (JMP) for Water Supply and Sanitation.⁶ The economic effects of ineffective water resource management are becoming increasingly apparent, and these effects will likely limit economic development and greatly exacerbate rural poverty, particularly in emerging and developing economies.

Growing societal expectations

Increasingly, companies are responding to the growing expectations of investors, business partners, and governments, who are “asking hard questions of global businesses and incorporating respect for human rights into relevant policies, standards, and regulations.”⁷ Companies are also addressing the reputational risks associated with supply chain issues and human rights, water scarcity, and access to safe water, sanitation, and hygiene (WASH). In certain industry sectors, there is a recognition of the commercial costs associated with failing to manage these issues. For example, in the extractives sector, some of these commercial costs manifest as operational inefficiencies in supply chains and the operational costs of conflict with local communities. In some cases, companies frame responses as “the right thing to do” as they align social performance with core corporate values and the values of their employees.

However, there are often practical challenges in responding to social issues. Companies, and those responsible for human rights issues within those companies, face a number of barriers to operationalizing solutions that address social concerns. These barriers can include the need for increased awareness and understanding of the relevance and meaning of human rights and social issues; challenges in securing the leadership and commitment necessary within the organization to act; and difficulties in translating that commitment into policies and practices embedded in a company’s operations and long-term strategy.

Despite such challenges, businesses are under mounting stakeholder pressure to make meaningful progress toward addressing social issues such as WASH. And while it is not in the mission statement of most companies to directly solve social challenges, businesses, especially multinational corporations, are well positioned to catalyze action and solutions to social challenges due to their reach, scale, and scope. Multinational businesses’ geographic reach crosses political boundaries, and many have supply chains that provide goods to the last mile.⁸ Their scale means that they have the ability to deploy resources and capital as needed, and their scope means they have the ability to address complex, interconnected issues. For example, they can work to improve the quality of a food product in a way that simultaneously addresses environmental degradation, water use, and labor practices.

Access to safe water, sanitation, and hygiene as a global challenge

Water demand and supply

• Extreme water scarcity is projected to be widespread across all continents by 2025, including much of the western United States, Australia, Africa, and Asia.⁹
• The 2030 Water Resources Group predicts that, if current trends continue, the demand for water will exceed supply by 40 percent by 2030 and that closing this gap could cost as much as $50–60 billion a year for the next 20 years.¹⁰

Lack of safe water and sanitation

• Of the world’s estimated 7 billion people, 6 billion have mobile phones, but only 4.5 billion have access to any type of toilet or latrine (based on WHO/UNICEF JMP estimates). Of the remaining 2.5 billion people, mostly in rural areas, 1.1 billion people still defecate in the open.¹¹
• The World Business Council for Sustainable Development (WBCSD) states that “more than 1.8 billion people depend on unsafe drinking water, and an estimated 4.1 billion don’t have access to adequate sanitation.” These numbers are higher than the WHO/UNICEF JMP estimates, but according to the WBCSD, “the official JMP numbers are underestimated as they do not include water quality measurements and only look at points of access. The [numbers utilized by the WBCSD] are still considered to be underestimated.”¹²
• Unsafe drinking water, inadequate availability of water for hygiene, and lack of access to sanitation together contribute to about 88 percent of deaths from diarrheal diseases.¹³
• WASH-related diarrheal diseases kill approximately 1,400 children under five every day, or over half a million children per year.¹⁴

The business impacts of WASH

Many corporations have an interest in addressing problems associated with WASH, which are emerging as legitimate and pressing business issues as well as social and environmental ones. The operational risks and costs associated with disruptions to a company’s water supply are well known, but the risks and costs don’t stop there. Many companies have suppliers, operations, employees, contractors, and customers in regions lacking access to safe water, sanitation, and proper hygiene. At worst, the economic, social, and environmental consequences can result in illness and death. In addition, productivity can be diminished and market access limited for some products and services. Productive working time is lost to water collection as well as to water-related disease and low life expectancy. Time savings associated with drinking water systems account for nearly 70 percent of total benefits in all regions.¹⁵ Estimates suggest that achievement of the UN Millennium Development Goal (MDG) Target 7.C—which calls to halve, by 2015 (from the baseline year of 1990), the proportion of the global population without sustainable access to safe drinking water and basic sanitation—may lead to an increase of 3.2 billion productive days and 272 million school days per year as a result of decreased absenteeism, reduced workplace accidents, and improved productivity.¹⁶ This equates to over $60 billion in annual benefits.¹⁷ Less frequent water-related illness also results in reduced short-term and long-term health care costs for employees and employers.¹⁸ In turn, the impact on human resources from insufficient access to safe water, sanitation, and hygiene can restrain the growth of local economies.¹⁹

Other water-related risks across the broader business value chain include loss of license to operate and brand value. Given society’s basic expectation of businesses to respect human rights, failure to comply with guidance to respect the human right to water and sanitation could result in loss of social license to operate. Perceived misuse of water resources can also negatively impact businesses and possibly lead authorities to revoke a company’s (literal) license to operate within certain communities.

Conversely, businesses can make a positive impact on productivity and employee morale, as well as on public health and well-being, by maintaining workplace access to safe drinking water and appropriate sanitation facilities coupled with hygiene materials, education, and awareness building.²⁰ Increased education and awareness can also drive improvements in the larger community. Water and sanitation interventions are cost-effective across all world regions. It is estimated that for every $1 invested in water and sanitation, $4.30 is generated in economic returns through increased productivity.²¹ In developing countries, providing safe drinking water to an additional 10 percent of the population increases per-capita GDP growth by more than 2 percent per year.²² This can potentially lead to more customers and disposable income to be spent on a business’ products and services.²³ Providing access to safe WASH to all employees across the value chain, and extending those provisions to surrounding communities, can also lead to intangible benefits such as improved public perception and increased brand value.

Furthermore, many companies recognize that providing solutions to water-related challenges presents a continued area of opportunity for sales of new products and services across a diverse range of markets. The market is growing in areas lacking access to safe drinking water and sanitation, as well as those affected by climate change where water efficiency, recycling, and reuse are becoming increasingly important.²⁴

World Business Council for Sustainable Development’s WASH pledge and guiding principles

The WBCSD has begun to mobilize businesses to address WASH with an initiative it calls “Business action for access to water and sanitation,” with one objective being to “establish cross-sector collaborative action at scale” around WASH issues.²⁵ In August 2013, as an initial step in gaining commitment to the initiative, the WBCSD released the document Water, sanitation, and hygiene implementation at the workplace: Pledge and guiding principles to accelerate cross-industry business action related to water for human use and consumption, improved sanitation, and proper hygiene.²⁶ The pledge aims to secure appropriate access to safe WASH for all employees in all premises under direct company control, while the guiding principles include a suggested process for companies to follow and points of reference on leading practices in providing access to safe WASH in various workplaces (for example, offices, commercial buildings, operational plants, factories, warehouses, laboratories, retail locations, offshore operations, mobile and temporary work sites, and land such as agricultural fields). The longer-term vision is to go beyond the fence to advocate for safe WASH access for all employees along the value chain and, ultimately, the homes and communities where employees live.

Nestlé signed the WBCSD’s pledge for access to safe water, sanitation, and hygiene at the workplace to put its own corporate business principles into practice and reinforce its public commitments on water stewardship.²⁷ Nestlé has made a self-assessment of standard WASH practices and confirmed its own performance vis-à-vis the pledge. Beyond its own four walls, Nestlé is also tracking the history of WASH initiatives already implemented in communities adjacent to selected manufacturing facilities and in locations where the company procures key agricultural commodities.

For these reasons, leading companies are increasingly moving from conventional thinking, which relegates WASH and other environmental and social issues to the public sector and regulators, to an approach to environmental and social problem solving in which business is an essential player. The responsibility of business related to WASH is codified in the CEO Water Mandate, and guidance is provided to help large-scale water-using companies translate their responsibility to respect the human rights to water and sanitation into their existing water management systems, operations, and company cultures.²⁸ Companies are increasingly “internalizing externalities” in ways that, with respect to water, can include providing access to safe water, improving sanitation, and promoting hygiene.²⁹ They are transitioning from water management, focused on the immediate and direct costs of scarcity and efficient use of water, to water stewardship, focused on long-term availability of water for all stakeholders and on ensuring a consistent, high-quality supply for all uses over time. In short, WASH issues are becoming a critical aspect of corporate water stewardship in a rapidly evolving global economy where social license to operate, reputational risk, and access to natural resources have become increasingly important to success.

Collective action as a strategy to address WASH

Collective action frameworks: Innovation in partnerships

A company’s commitment to address WASH needs within the communities and markets in which they operate is part of the transition from water management to water stewardship.³⁰ The next level of engagement, a focus on collective action—strategic, innovative partnerships across the public, private, and social sectors—offers ways to further address access to WASH. Indeed, given the different resources of the communities, governments, nongovernmental organizations (NGOs), and other businesses with a stake in these issues, many companies are discovering that working with others can be the most effective way, and sometimes the only way, to pursue WASH-related goals.

Collective action is a new manner of solving complex social problems, one in which unlikely partners come together with new business models, technologies, and an appetite to work together to find solutions. In the case of the WASH challenge, a collective-action approach makes sense. Mutual advantage is an encouragement to collaboration: Multiple stakeholders would benefit from taming the problem, and even more so if they can find a sustainable solution. WASH problems are often too complex for any stakeholder to solve on its own, and sharing the cost of the work results in less risk for any one party. In addition, approaches to problem solving, as well as the implementation of solutions, can be informed by the experiences and resources of all parties. For example, overcoming challenges on the ground is where field-level organizations excel; identifying how to scale opportunities is a core competency for multinationals; and using policy to set long-term goals is the role of governments.

Multiple stakeholders would benefit from taming the problem, and even more so if they can find a sustainable solution. WASH problems are often too complex for any stakeholder to solve on its own, and sharing the cost of the work results in less risk for any one party.

Some of the benefits of effective collective action include:³¹

• Clear articulation of the problem (for example, a more robust understanding and connection to water management challenges and realities), shared ownership of solutions, and clarity of joint purpose
• More informed decision making by both business and nonbusiness parties to the effort
• Broader scope and depth of motivation and momentum in support of improvements
• An expanded pool of expertise, capacity, and/or financial resources focused on fostering change
• More durable outcomes due to support from the engaged parties
• Establishment and maintenance of credibility and legitimacy with key interested parties, resulting in improved legal and social license to operate
• Stronger, more sustainable governance (for example, over community water initiatives) through the engagement of multiple stakeholders

Where WASH specifically is concerned, there is an increasing societal expectation that businesses go beyond their immediate operations to tackle these issues across the value chain, including employees working upstream in the value chain and employees at their place of residence. As described by the World Business Council for Sustainable Development, potential solutions to address WASH issues increase in complexity the further away they are from a company’s direct operations (see figure 1). However, the potential impact of these solutions also increases as they are implemented across broader “spheres of influence,” such as along the supply chain or within the communities where the company’s employees live. Many of the potential solutions to address issues across the outer spheres of influence will involve working collectively with local communities, governments, NGOs, academia, and other businesses to manage shared water resources within a catchment by improving WASH provisions and/or cultivating behavioral change through education, incentives, or other means.

Several collective-action frameworks exist in the field of WASH, all encouraging companies to look beyond their direct operations and pursue a broader range of actions to tame the problem. Participants are encouraged to consider supply chain and watershed management, public policy, and community and stakeholder engagement, among other activities. Whether the framework is a mandate seeking signatories, an alliance seeking participants, or another type of framework, much of the value lies in encouraging and enabling a network approach to problem solving and in helping businesses to find supportive partners.

The CEO Water Mandate is an example of an umbrella program that encourages individual corporations to get involved in its network and use its resources to address water issues. It is a global movement that seeks to mobilize businesses to advance corporate water stewardship and provides opportunities for collective action at many levels. In particular, the CEO Water Mandate’s Guide to water-related collective action introduces the idea that success in responsible engagement is critically tied to effective collective action among all parties with a stake in sustainable water management at the relevant scale—local, regional, national, or international.³² The guide provides a five-element process to approaching collective action:

1. Scoping the water challenges and action areas that the collective action will address
2. Identifying and characterizing the interested parties on whom action areas critically depend
3. Engaging all interested parties in the challenges and action areas at a level of involvement that will deliver the desired results and benefits to participants
4. Designing the collective-action engagement
5. Structuring and managing the collective action

In addition, the CEO Water Mandate provides an online platform, the Water Action Hub, which assists organizations in identifying potential collaborators to improve water management in regions of critical strategic interest.³³ The online tool allows companies to more easily identify and collaborate with businesses, relevant governments, NGOs, and local communities to advance sustainable water management on a location-specific basis. The hub features a mapping function that visually places each facility or organization within watershed maps to help organizations understand stakeholder initiatives in their watersheds of interest.

Addressing WASH issues through collective action

Many companies are reducing their exposure to water-related risks and, in partnership, identifying ways in which water-related issues can have a tangible positive impact on company performance.³⁴ Effective collaboration offers companies the chance to benefit from each other’s experience, gain fresh ideas, increase the momentum for change, pool resources, enhance credibility and legitimacy, and become better water stewards. Working with others to varying degrees can also help mitigate basin-related risks, improve value chain performance, boost reputation on water issues, and build brand trust and loyalty.

Collaboration on access to safe WASH can help companies achieve leading practices and gain alignment of their environmental strategies with public policy goals and multistakeholder initiatives. Engaging with value chain partners can also provide added value in being able to collectively develop new approaches to achieve common goals. Providing access to safe WASH to all employees across the value chain, and extending those provisions to surrounding communities, allows companies to align their engagement efforts with their sustainability programs and also leads to intangible benefits such as improved public perception and increased brand value.³⁵

Working with NGOs, which may have greater credibility and experience in dealing with local communities, can also allow businesses to more effectively deploy WASH solutions to potential markets and labor pools. For instance, Nestlé has worked with the International Federation of Red Cross and Red Crescent Societies (IFRC) and the Red Cross Society of Côte d’Ivoire to provide water and sanitation facilities and hygiene training in Côte d’Ivoire. By working with these NGOs, Nestlé has been able to educate individuals in high-water-risk areas, far from the corporation’s core business, about water and sanitation. Without a local partner to provide expertise about the community and establish relationships, this work would not be possible. Since 2007, more than 60,000 adults and children have started to feel the benefit of this program, and by 2014, the program will cover 55 schools, 66 water points and sanitation facilities, and at least 75,000 beneficiaries in the cocoa-growing areas of Côte d’Ivoire.³⁶

Engaging with peers and suppliers, in turn, can allow companies to share leading management and reporting practices. While many companies may find competitive advantage in their management of water-related issues, shifting their practice to work collaboratively with other businesses—even competitors—can help provide cost-effective solutions to industry-specific risks that enable all parties to remain competitive while improving their business resilience.³⁷

As an example, in 2002, Nestlé, Unilever, and Danone created the Sustainable Agriculture Initiative (SAI) Platform, a nonprofit organization to facilitate sharing, at a precompetitive level, of knowledge and initiatives to support the development and implementation of sustainable agriculture practices involving various food chain stakeholders.³⁸ Today, the SAI Platform includes over 60 members that have produced deliverables such as principles and practices for sustainable water management at farm level; recommendations for sustainability performance assessment; a standardized methodology for the dairy sector to assess greenhouse gas emissions; an executive training on sustainable sourcing; and many more. Through participation in the Australian SAI Platform, which has a water and climate change working group, Nestlé focuses on water reduction and conservation actions for manufacturing facilities in the Murray-Darling river basin. Some site-specific actions for water reduction have included capturing rainwater from warehouse roofs (saving 250 kL/year); reducing sanitize flushes in cleaning circuits (1,000 kL/year); reducing the blowdown rate on cooling towers (~1,875 kL/year); changing from batch to inline processing of products (1,000 kL/year); installing an auto on/off valve on pump seal water supply (1,750 kL/year); and removing redundant cleaning pipework (2,000 kL/year).³⁹

Roles businesses can play in collective action arrangements

Businesses can play many roles in collective action arrangements: as a funder, an infrastructure provider, expertise provider, or convener. In each of these roles, business can contribute needed resources and/or knowledge to joint efforts with other parties. For example, funders finance projects that provide safe drinking water and sanitation to people in need; infrastructure providers build or provide access to various types of infrastructure needed to support WASH-related efforts; expertise providers contribute knowledge to combat WASH issues; and conveners act to bring together disparate parties to work toward a common cause.

With respect to water resource management, businesses can provide a wealth of data, expertise, and technology that allow governments to make informed decisions and implement them more effectively. With respect to WASH goals, industry can invest in pollution reduction and, where appropriate, providing greater access to services, simultaneously reducing their risks and advancing public policy goals. Businesses can also act as an agent of change, encouraging governments to allocate resources to important issues and promoting good practices among their employees and suppliers in the watersheds in which they operate. Ultimately, to be true water stewards and advance sustainable development goals, companies must not only manage water as a business risk, but assume the role of enabler and facilitator of improved water management in the public interest.⁴⁰

The path forward

Access to safe WASH has emerged as a problem that can be more effectively addressed through collective action involving multiple stakeholders, including multinational corporations, than by unilateral actions by the public sector or NGOs. Collective-action frameworks provide a platform to tackle social problems by harnessing the diverse perspectives and power of multinationals, NGOs, and the public sector.

Developing a collective-action approach to solving problems requires a willingness to develop what are perhaps unlikely partnerships. Questions to consider when exploring ways to harness the power of collective action, and with whom to partner, include:

• What is your current and planned business strategy and your value chain with respect to geographies where these problems exist?
• How are these issues being addressed by you, other multinationals, NGOs, and the public sector?
• What barriers exist to addressing these issues?
• Are there collective action initiatives in place to address these issues? If not, how can I become a catalyst to address these issues in collaboration with other stakeholders?
• What role(s) is/are my business best equipped to play in collaborative efforts? Should we act primarily as a funder, expertise provider, infrastructure provider, or convener—or in some other role?
• How can I establish a vision, quantify goals, measure progress, and transparently report, disclose, and communicate to all stakeholders?

Leadership by multinational companies in addressing social problems aligns with a trend for companies to internalize these issues—formerly dismissed as side effects, or externalities—in a world of transparent and accelerated communications. As companies internalize externalities related to water, they are increasingly being drawn into the business and social ecosystems that share dependence on this vital resource. Collective action is one way to parlay awareness of this shared dependence and vulnerability into coordinated efforts that can make a greater impact than any single party acting alone.