How Water Crisis is Putting Supply Chains at Risk

Water scarcity is emerging as a major issue for supply chains, a recent study by the environmental non-profit CDP revealed. According to the firm's 2023 Global Water Report, water-related risks are putting at least $77 billion of global supply chain value in jeopardy, with $7 billion facing immediate danger.

CDP, which operates the world's environmental disclosure system, gathered data from a questionnaire of 3,163 companies, each with annual revenues of over $250 million.

The findings highlight a growing awareness of the issue, with half of the respondents actively engaging their supply chains on water risk. This ranges from including water conservation requirements in contracts with suppliers, to promoting innovation in water use and raising awareness about water-related issues.

The pressure on global water resources is intensifying, driven by a rising demand for water for food and energy production. The United Nations predicts an increase in the global water demand of up to 30% by 2050,

“The data is telling us our water supplies are becoming ever more fragile and the financial toll is mounting up,” said Dr. Patricia Calderon, CDP's Global Head of Water. “It’s down to large companies with the biggest water impacts to take immediate action, working with their suppliers to stem the tide of water risk.”.

Not all companies are taking action

Despite this increasing water demand, 894 companies surveyed (28%) said they still have no plans to engage with their supply chains on water issues within the next two years. This includes the manufacturing, agriculture, and transportation sectors, where a fifth of the companies felt the issue was not important despite their businesses having high water impacts.

This complacency does not sit well with those dealing with this issue. 

“We need a paradigm shift in the way our economic metrics, and the politics behind them, value and govern water,” commented Henk Ovink, executive director of the Global Commission on the Economics of Water.

CDP's report outlines six key steps for companies to tackle water risks in their supply chains, including: 

• Assess supply chain risks and impacts.
• Set global supply chain targets.
• Incentivize executives to act.
• Include water in supplier requirements.
• Engage with suppliers.
• Incentivize and support suppliers.

The bar needs to be raised much higher if we want to build strong and effective supply chains, free from serious water risks,” Calderon said. “Companies should shift their outlook to recognizing the significant opportunities from becoming more water resilient.”