“Protecting water means operating sustainably”

Why we have to be aware of water risks. How corporations are impacted and how industries can mitigate risks to protect the environment and drive long-term market sustainability. An interview with US water economist Joseph Kane from the Brookings Institution.

What are the key water risk drivers affecting businesses?

Concerns over water use affect many businesses. Our surface water and groundwater supplies are not infinite and concerns over scarcity and efficiency are mounting. Aging, leaking pipes across the US waste trillions of gallons of water annually. From farming to manufacturing, water remains an essential resource, yet there is a widespread need to integrate new plans, technologies, and other upgrades to better manage and protect it.

Significant challenges are also emerging around outdated wastewater and stormwater systems. Many sewers feature older, inefficient designs that are easily overwhelmed every day, let alone during major hurricanes or storms. Contaminants, sediment, and other non-point sources of pollution are also rising, leading to enormous stormwater concerns. As a result, water utilities are facing higher repair bills and charging higher rates to customers, including businesses.

more extreme and uncertain climate is often amplifying these water challenges. Floods, droughts, wildfires, and freezes are not simply random; they represent acute and chronic shocks hitting communities, utilities, and businesses with greater frequency and intensity. That means greater operational and insurance risks, as well as mounting damage, disruptions, and costs that are inextricably tied to water infrastructure.

Steps toward greater mitigation and future climate impacts matter, but businesses are already grappling with and adapting to these climate realities.

There is a widespread need to integrate new plans, technologies, and other upgrades to better manage and protect it.
Joseph Kane

How do these risks impact the business and financial health of corporations?

Our water infrastructure represents a shared asset that provides shared benefits and costs; meaning these risks are hitting both producers AND consumers.

Corporations that depend on water resources to grow crops, manufacture goods, and generate other outputs are susceptible to such risks, but so are the corporations that depend on water to operate.

Buildings can have bursting pipes, highways can close during floods, and ports can face delays during major storms. While threats to health and safety remain concerns, the economic ripple effects can also be significant.

What can investors do to help corporates mitigate these risks in order meet ESG goals?

Many of these challenges are massive in scope, but addressing them is often a local and fragmented endeavour that typically lands on the public water utilities lacking the financial and technical capacity to make proactive investments. As much as the current focus is on federal leadership, states and localities are responsible for 95% of total public spending on water each year.

However, corporations and others in the private-sector have a central role in managing these risks and supporting infrastructure upgrades. Investors need to recognize the scale and variety of the challenge and the opportunity facing our larger environment. Our water infrastructure requires ongoing maintenance and investment, which includes forward-looking green designs, innovative technologies, and other projects.

From seawalls to rain gardens to digital sensors, there is potential for improvements to better manage risks and reduce costs. It’s up to public and private leaders to accelerate plans and investments.

What are the top three most water-reliant industries and how can they best address water stress to meet both ESG and market expectations?

All industries depend on water infrastructure, but some use the resource more extensively to generate output and drive market activity. For water-reliant industries, investing in new technologies and other innovative water management practices can lead to efficiency gains, minimize pollution concerns, and support steps toward greater environmental conservation.

The energy sector tends to use the most water according to USGS estimates. Generating thermoelectric power accounts for nearly 41% of all water withdrawals to help cool water in the power plants converting coal, natural gas, and other sources into energy. The use of renewable energy sources, including solar and wind, would lessen our need for water in this sector, but implementing new water re-use technologies can make a difference. Closed-loop cooling systems, wastewater recycling, and desalination facilities are a few of the innovations underway to address our water stresses and benefit from additional investment and scaling.

Agriculture is another intensive water user, especially for irrigation, which represents 37% of all water withdrawals. Harvesting certain crops can require enormous amounts of water, stressing both our surface and groundwater supplies. Agricultural runoff can also be harmful to the environment, including pesticides and waste from livestock.

However, farmers, ranchers, and other agricultural operators are incorporating new technologies and practices to lessen water impacts. Advancements in irrigation technologies, including sprinkler irrigation and micro-irrigation, can help, as can more responsible groundwater management. The preservation of vegetated buffers and other land use strategies can help filter and treat runoff. The key is further incentivizing and scaling these strategies from region to region.

The broader industrial and manufacturing sector depends extensively on water. Commodities such as food and beverages, paper, and chemicals are among the major goods that rely on large amounts of water. Even producing simple goods like T-shirts can require 700 or more gallons of water each. Shifting the types of inputs used, production processes utilized, and technologies employed can improve water efficiency.

Adjusting our existing industrial practices can go with industry-wide partnerships and planning such as The Water Council is uniting action among 238 water technology companies to accelerate the deployment of new innovations.

What industries pose the biggest stresses to water and how can investors respond to ensure these risks are managed?

While energy, agriculture, and manufacturing all pose significant water management challenges, perhaps the most concerning — and opportunity-rich — sector is real estate and land development. Prevailing patterns of growth in the US have long centred around low-density sprawl for residential, commercial, and industrial land uses; these not only require building out and maintaining more water infrastructure in general, but they also eat green space and contribute to significant stormwater pollution.

As we saw in Houston, Texas, during Hurricane Harvey a few years ago, the extensive flooding damage and costs were at least partially due to the enormous amount of impervious surface cover, i.e., roofs, roads, that made it hard for water to naturally soak into the ground. On the other hand, denser, mixed-use developments tend to require less infrastructure, preserve more green space, leading to more liveable and economically dynamic outcomes.

Local planners and real estate developers must all coordinate on new types of land use strategies, but water utilities and other actors, including investors, can be active players here. As municipalities repair and replace ageing infrastructure, comply with environmental regulations, and try to incorporate new green designs and technologies, a lack of public funding and inability to take on more debt remains a sticking point.

However, the emergence of new financial instruments, including green bonds, climate bonds, and environmental impact bonds, are opening up new opportunities to accelerate these projects. New public-private partnerships, namely community-based public-private partnerships, are spreading risks, amplifying community benefits and getting more projects done.

In this way, managing our water risks doesn’t have to mean avoiding costs, but can mean seizing new opportunities to collaborate and invest. Doing so can help more people and places nationally, with more consistency, certainty, and strategic direction.

About Joseph W. Kane

Joseph W. Kane is a Senior Research Associate & Associate Fellow at the Brookings Metropolitan Policy Program. Kane’s work focuses on a wide array of built environment issues, including transportation and water infrastructure. Within these areas of research, Kane has explored infrastructure’s central economic role across different regions as well as its relationship to opportunity and resilience. Prior to Brookings, Kane was an economist at the U.S. Bureau of Labor Statistics. Kane holds a master’s degree in urban and environmental planning from the University of Virginia and a bachelor’s degree in economics and history from the College of William and Mary.

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