Why Water Access Should Be Part of Your Risk Metrics
-
bookmark
-
print
In the current tally of key risks and mitigants it’s easy to feel that the risk side of the equation is having a banner era; with business leaders being forced to manage through challenges that previous generations could have never anticipated or experienced. Climate change, populism, pandemics, high inflation, interest rate risk, economic migration, and the list goes on. Yet there is another risk that many businesses have not incorporated into their five- and 10-year strategies, and that is water risk.
While it may not appear that North America has a water shortage, a recent report by the BMO Climate Institute notes, “Holding more than 20% of the world’s freshwater reserves, North America boasts rich and diverse freshwater resources, but it is also home to some of the highest per-capita water consumption globally.”
Predictability of certain events is a key element for making informed business decisions, but there’s nothing predictable about water access. Whether it’s drought conditions causing water scarcity or increased flooding inundating regions with unusable water, access to water is more imbalanced and unreliable than ever. It’s safe to say that in the next five to 10 years, your access to water will have changed compared to what it is today.
The importance of water access is obvious for some industries, such as agriculture and food and beverage. But they’re hardly the only ones. Semiconductor manufacturing, for example, is heavily dependent on access to clean water. The recent microchip shortage was due in part to a drought in Taiwan, the global impacts of which are still being felt.
“Climate change means that access to water is no longer predictable or reliable,” says Nelson Switzer, managing partner at Climate Innovation Capital, a growth equity fund focused on climate tech startups. “The cost and availability of water are having material impacts on the ability of businesses to process, procure and produce.”
Whether you’re considering regional expansion or concerned about the viability of a business model altogether, access to water should be a part of your company’s key risk metrics.
Assessing and Adjusting Your Usage and Risks
As we are seeing with ESG-related issues more broadly, for any investment horizon of more than a few years, water access will have implications on longer-term business viability. That’s why you’ll need to consider how your ability to source and access water could change in that timeframe.
Undertaking a strategic pivot starts with understanding your current water usage patterns and how that relates to the long-term water usage prognosis within your operating region. The French wine industry, for example, has had to adapt to the impact that hotter summers have had on grape production. Within 10 years, production from the Bordeaux region may not be suitable to the types of grapes they currently grow.
That’s why French winemakers are experimenting with different grape varietals that can adapt to the new conditions. It’s also why we’re seeing more winemakers expand into other Northern European countries, as well as Eastern Europe, South America and even Canada—places previously considered too cold for fine wine production—where they’ll be able to grow grape varieties that will enable them to succeed over the long term.
Another example is almond milk manufacturing. Almond trees take several years to become cash flow positive. But most North American almond production takes place in areas of California where farmers increasingly have to fallow the land—leaving it uncultivated for at least one season to allow the land to become more fertile again—because they don't have enough water to make the crops pay out.
In this case, it’s a matter of determining where you can plant almond trees that can have a useful life over the next 25 years. The solution could include considering innovations in irrigation, or it could involve adjusting your five-year plan to acquire land in a region with better access to water.
But as the availability of water is changing across North America, some tactical adjustments come with other risks. Water is crucial for the industrial and manufacturing hubs in northern Mexico, for example, but that region is currently suffering from a severe drought.
Read the full analysis from the BMO Climate Institute
You could move your operations to the more water-rich southern regions of Mexico, but that could lead to other implications. For example, would you have the supply chain infrastructure in place to handle your needs, including labor and the extra distance between your operations and your customers? That’s a question beer companies in northern Mexico are currently facing. Also, would the additional industrial demand lead to shortages down the road?
Even as we look at ways to get smarter about our own investments, vertical farming represents a significant opportunity do address many of these issues, especially in the production of leafy greens in Canada. The work being done by companies like Vision Greens in Southern Ontario demonstrates how this process can address the seasonal availability while limiting the need to ship truckloads of lettuce from California that require a significant amount of water from the Colorado river.
Capitalizing on Your Conservation Efforts
Ultimately, business owners and investors can begin to address water access by focusing on three key areas:
1. Water access should be a primary risk metric, whether you're buying, expanding or investing in a company.
2. You should understand your current reliance on water access and how that reliance will affect your future operations and profitability.
3. The time is now to determine whether you need to adjust your strategy to prepare for a potentially changing environment.
After in-depth conversations with many industry experts, including the water consultants at WaterSmart Solutions in Alberta and Water Foundry, we felt the time was now to raise these important issues with our peers.
As a business leader, it’s more important than ever to be aware of your access to water as part of your long-term plan, as well as how you position your business to potential investors. As an investor, you’ll need that information to evaluate potential opportunities. Because in the end, you can't assume that the access you have today will still be there in a few years.
“There’s not a lot we can do without water, but there’s plenty we can do with less water,” says David Henderson, Managing Partner, XPV Water Partners, a Toronto-based water investment fund. “The technology companies in our portfolio are innovators whose solutions focus on improving operational efficiencies so that end users can increasingly do more with less, meet emissions targets, and improve the quality of the water that industry returns to sustain limited freshwater supplies. A water-secure future depends on thinking differently about how we manage the water we have.”
Your workforce can be a valuable resource for tackling this issue. This is a subject that greatly concerns Generation Z, a demographic that is expected to account for 30% of the workforce by 2030. In fact, it was one of our summer interns who helped us understand the full breadth and complexity of the issue.
The risks to water access will continue to be a challenge. While the downside implications can be severe, proper planning and foresight can help you mitigate those risks.
“Access to clean and fresh water suitable for sanitation and hygiene is a fundamental human right,” Switzer says. “All people and businesses seem to agree on that. However, we must also ensure that businesses can access the quality and quantity of water they require to operate in order to ensure a stable and prosperous economy and society.”
- Minute Read
- Listen Stop
- Text Bigger | Text Smaller
In the current tally of key risks and mitigants it’s easy to feel that the risk side of the equation is having a banner era; with business leaders being forced to manage through challenges that previous generations could have never anticipated or experienced. Climate change, populism, pandemics, high inflation, interest rate risk, economic migration, and the list goes on. Yet there is another risk that many businesses have not incorporated into their five- and 10-year strategies, and that is water risk.
While it may not appear that North America has a water shortage, a recent report by the BMO Climate Institute notes, “Holding more than 20% of the world’s freshwater reserves, North America boasts rich and diverse freshwater resources, but it is also home to some of the highest per-capita water consumption globally.”
Predictability of certain events is a key element for making informed business decisions, but there’s nothing predictable about water access. Whether it’s drought conditions causing water scarcity or increased flooding inundating regions with unusable water, access to water is more imbalanced and unreliable than ever. It’s safe to say that in the next five to 10 years, your access to water will have changed compared to what it is today.
The importance of water access is obvious for some industries, such as agriculture and food and beverage. But they’re hardly the only ones. Semiconductor manufacturing, for example, is heavily dependent on access to clean water. The recent microchip shortage was due in part to a drought in Taiwan, the global impacts of which are still being felt.
“Climate change means that access to water is no longer predictable or reliable,” says Nelson Switzer, managing partner at Climate Innovation Capital, a growth equity fund focused on climate tech startups. “The cost and availability of water are having material impacts on the ability of businesses to process, procure and produce.”
Whether you’re considering regional expansion or concerned about the viability of a business model altogether, access to water should be a part of your company’s key risk metrics.
Assessing and Adjusting Your Usage and Risks
As we are seeing with ESG-related issues more broadly, for any investment horizon of more than a few years, water access will have implications on longer-term business viability. That’s why you’ll need to consider how your ability to source and access water could change in that timeframe.
Undertaking a strategic pivot starts with understanding your current water usage patterns and how that relates to the long-term water usage prognosis within your operating region. The French wine industry, for example, has had to adapt to the impact that hotter summers have had on grape production. Within 10 years, production from the Bordeaux region may not be suitable to the types of grapes they currently grow.
That’s why French winemakers are experimenting with different grape varietals that can adapt to the new conditions. It’s also why we’re seeing more winemakers expand into other Northern European countries, as well as Eastern Europe, South America and even Canada—places previously considered too cold for fine wine production—where they’ll be able to grow grape varieties that will enable them to succeed over the long term.
Another example is almond milk manufacturing. Almond trees take several years to become cash flow positive. But most North American almond production takes place in areas of California where farmers increasingly have to fallow the land—leaving it uncultivated for at least one season to allow the land to become more fertile again—because they don't have enough water to make the crops pay out.
In this case, it’s a matter of determining where you can plant almond trees that can have a useful life over the next 25 years. The solution could include considering innovations in irrigation, or it could involve adjusting your five-year plan to acquire land in a region with better access to water.
But as the availability of water is changing across North America, some tactical adjustments come with other risks. Water is crucial for the industrial and manufacturing hubs in northern Mexico, for example, but that region is currently suffering from a severe drought.
Read the full analysis from the BMO Climate Institute
You could move your operations to the more water-rich southern regions of Mexico, but that could lead to other implications. For example, would you have the supply chain infrastructure in place to handle your needs, including labor and the extra distance between your operations and your customers? That’s a question beer companies in northern Mexico are currently facing. Also, would the additional industrial demand lead to shortages down the road?
Even as we look at ways to get smarter about our own investments, vertical farming represents a significant opportunity do address many of these issues, especially in the production of leafy greens in Canada. The work being done by companies like Vision Greens in Southern Ontario demonstrates how this process can address the seasonal availability while limiting the need to ship truckloads of lettuce from California that require a significant amount of water from the Colorado river.
Capitalizing on Your Conservation Efforts
Ultimately, business owners and investors can begin to address water access by focusing on three key areas:
1. Water access should be a primary risk metric, whether you're buying, expanding or investing in a company.
2. You should understand your current reliance on water access and how that reliance will affect your future operations and profitability.
3. The time is now to determine whether you need to adjust your strategy to prepare for a potentially changing environment.
After in-depth conversations with many industry experts, including the water consultants at WaterSmart Solutions in Alberta and Water Foundry, we felt the time was now to raise these important issues with our peers.
As a business leader, it’s more important than ever to be aware of your access to water as part of your long-term plan, as well as how you position your business to potential investors. As an investor, you’ll need that information to evaluate potential opportunities. Because in the end, you can't assume that the access you have today will still be there in a few years.
“There’s not a lot we can do without water, but there’s plenty we can do with less water,” says David Henderson, Managing Partner, XPV Water Partners, a Toronto-based water investment fund. “The technology companies in our portfolio are innovators whose solutions focus on improving operational efficiencies so that end users can increasingly do more with less, meet emissions targets, and improve the quality of the water that industry returns to sustain limited freshwater supplies. A water-secure future depends on thinking differently about how we manage the water we have.”
Your workforce can be a valuable resource for tackling this issue. This is a subject that greatly concerns Generation Z, a demographic that is expected to account for 30% of the workforce by 2030. In fact, it was one of our summer interns who helped us understand the full breadth and complexity of the issue.
The risks to water access will continue to be a challenge. While the downside implications can be severe, proper planning and foresight can help you mitigate those risks.
“Access to clean and fresh water suitable for sanitation and hygiene is a fundamental human right,” Switzer says. “All people and businesses seem to agree on that. However, we must also ensure that businesses can access the quality and quantity of water they require to operate in order to ensure a stable and prosperous economy and society.”
Define the Future
PART 1
Brian Belski’s 2022 U.S. Market Outlook
Brian Belski December 09, 2021
In his 2022 U.S. market outlook, BMO Capital Markets’ Chief Investment Strategist Brian Belski explains why, even amid concerns aroun…
PART 2
The Current and Future State of the Global Supply Chain
Fadi Chamoun, CFA February 17, 2022
BMO recently held an event to discuss the current state of supply chain bottlenecks, strategies for managing the crisis and when we can exp…
PART 3
Why SLLs Have Only Just Begun to Roar
John Uhren March 01, 2022
When Enbridge Inc. launched its inaugural C$1bn Sustainability Linked Loan (SLL) in February 2021, it marked a milestone not only for the c…
PART 4
Amid the Pandemic, Market Structure Continues to Evolve
None April 01, 2022
Change is on the horizon for electronic trading as the U.S. Securities and Exchange Commission revisits regulatory reforms in a market that…
PART 5
State of the Union: What Lies Ahead
Brian Belski, David Jacobson, Michael Gregory, CFA April 21, 2022
Russia’s invasion of Ukraine has brought uncertainty to domestic and foreign policy as well as to the economy and the markets. It com…
PART 6
New Normal Yet to Come for Metals Prices: BMO Mining Panel
Colin Hamilton May 12, 2022
Prices for base and industrial and precious metals are flying high, but experts gathered at this year's BMO Global Metals and Mini…
PART 7
Amid the Supply Chain Woes, Supplier Wellness Takes Center Stage
Reg Butler June 02, 2022
There have been plenty of headlines about how backlogs in the supply chain are causing headaches for both companies and consumers. Those ch…
PART 8
Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference
Dan Barclay May 26, 2022
Join BMO’s Dan Barclay, Bert Powell, Joel Jackson, Ken Zaslow and Doug Morrow in this special episode from BMO’s IN Tune Podcas…
PART 9
M&A Markets Active Despite Macroeconomic Backdrop
Warren Estey May 19, 2022
As much as deal-making has cooled in 2022 - dampened by market volatility, geopolitical uncertainty, the ongoing fight against COVID-19 and…
PART 10
Private Capital Seizing the Stage in U.S. Middle Market
Grant Thompson August 04, 2022
Move over public markets, because there’s a new kid in town - well, sort of. It’s called private capital, and while it may h…
PART 11
Supply Chain Disruption: Key Challenges and Opportunities
Fadi Chamoun, CFA September 01, 2022
New look, same great content! We’re proud to launch Markets Plus, our new podcast, where leading BMO experts share a wealth of timely…
PART 12
Achieving Returns in an Accelerating AI Environment
David Wismer October 19, 2022
From improvements in Machine Learning and the development of new database systems to the development of sector-specific tools, significant …
PART 13
North American Investment Strategy: 2023 U.S. Market Outlook
Brian Belski December 21, 2022
While 2022 has been “a year we’d like to forget,” 2023 will be the start of the multiyear trend toward normalization. In …
PART 14
Managing and Monetizing Your Transition to a Net Zero World with BMO and Radicle
Eric Jacks December 01, 2022
When Calgary-based Radicle Group Inc. was formed in 2008 in Alberta as the first North American compliance market, the climate change narra…
PART 15
The Importance of Financial Forecasting
February 22, 2023
Forecasting and predicting the future. They’re the same thing, right? Not really. We all make predictions at some point. Many of u…
PART 17
Understanding the Link Between Cybersecurity and ESG
John Uhren, Andrew Matheou February 02, 2023
John Uhren is joined by Andrew Matheou, Head of BMO Capital Markets Global Transaction Banking, to discuss the topic of cybersecurity, and …
You might also be interested in
Women Entrepreneurs are Advancing Sustainability: Reflecting on the Results of the WE Empower UN SDG Challenge
Canadian Zero-Carbon Multi-Unit Residential Buildings: An Analysis of the Cost and Asset Value
BMO Equity Research on the AI + Data Center Build Out: Sustainability Impacts, Second Order Beneficiaries
A First in Western Canada: Avenue Living Leverages BMO's Retrofit Program to Add 179 New Rental Units in Downtown Edmonton
Making Renewable Energy Technology Accessible to Underserved Communities: GRID Alternatives in Conversation
Women are Leading Across the Landscape of Climate and Sustainability
The Role of Responsible Mining in the Clean Energy Transition: ICMM CEO Rohitesh Dhawan in Conversation
How NASA and IBM Are Using Geospatial Data and AI to Analyze Climate Risks
BMO Arranges Green Financing to Fund New Lawson Centre for Sustainability, Trinity College's Most Significant Build in a Century
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
Canada Has an Opportunity to Become a Global Leader in Carbon Dioxide Removal
Extreme Temperatures: How North American Cities Amplify Climate Change
More Companies Have Plans to Address Climate Change Based on Rising Business Importance: Survey Results
BMO Climate Institute Business Leaders Survey: Nearly Half of Business Leaders in the U.S. and Canada Believe Climate Change Has Already Affected Their Businesses, but Few Have a Strategy
Transforming the Textile Industry: Apparel Impact Institute in Conversation
How the Energy Sector Is Helping Canada Achieve Its Decarbonization Goals
Protecting Outdoor Spaces: The Conservation Alliance in Conversation
Building Meaningful Connections with Nature: Parks California in Conversation
Transforming the Global Food System to Benefit Investors and the Planet
Why Businesses Need to Accelerate Their Efforts to Fight Climate Change
BMO Donates $3 Million to GRID Alternatives to Provide Solar Energy Solutions for Low-Income Families
Banco do Brasil and BMO Financial Group to Introduce First-of-its-Kind Program to Provide Sustainability-Linked Trade Loans Supporting Brazilian Exporters
Free, Prior and Informed Consent (FPIC): Mark Podlasly in Conversation
BMO Provides Innovative New Sustainability-Linked Deposit Product to Zurn Elkay Water Solutions
Quick Listen: Michael Torrance on Empowering Your Organization to Operationalize Sustainability
Quick Listen: Darryl White on the Importance of US-Canada Partnership
BMO and Bell Canada Execute Innovative Sustainability-Linked Derivative Tied to Ambitious GHG Emission Reduction Targets
BMO Named to UN-Convened Group Providing Guidance to Global Banks on Nature Target Setting
Driving Innovations In Tech To Strengthen Climate Resilience With Climate Engine’s Spatiafi, Built On Google Cloud
BMO Celebrates Earth Day with 3rd Annual Trees from Trades Day on its Global Trading Floors
BMO Donates $2 Million to the University of Saskatchewan to Accelerate Research Critical to the Future of Food
North America’s Critical Minerals Advantage: Deep Dive on Community Engagement
The Most Valuable Commodity is Trust: ICMM to BMO Global Metals, Mining & Critical Minerals Conference
Rock Legends Reflect on Mining Hits and Misses: Global Metals, Mining & Critical Minerals Conference
Exploring North America’s Critical Minerals Advantage: Global Metals, Mining & Critical Minerals Conference
BMO Experts at our 32nd Global Metals, Mining & Critical Minerals Conference
Evolving Mining for a Sustainable Energy Transition: ICMM CEO Rohitesh Dhawan in Conversation
Public Policy and the Energy Transition: Howard Learner in Conversation
Quick Listen: Darryl White on the Economic Implications of a Rapidly-Aging Society
Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Takeaways from the BMO Climate Institute Small and Mid-Sized Businesses Climate Survey
BMO Ranked North America's Most Sustainable Bank by Corporate Knights for Fourth Consecutive Year
Is Green Financing for Nuclear the Next Frontier in the Energy Transition?
ESG Trends in the Base Metal and Diversified Mining Industries: BMO Equity Research Report
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
BMO Climate Institute Survey Shows Costs and Competing Priorities Slowing Climate Action for Small and Mid-Sized Businesses
Managing and Monetizing Your Transition to a Net Zero World with BMO and Radicle
BMO the Top Ranked Financial Institution on New Global Sustainability Benchmark Announced at COP 27
COP27 in Focus: Will Energy Security and Economic Uncertainty Impact the Climate Transition?
BMO to Invest in Innovative Carbon Offsets from CarbonCure to Permanently Store CO2
RoadMap Project: An Indigenous-led Paradigm Shift for Economic Reconciliation
A Canadian First: BMO and Concordia University Partner for a Sustainable Future with Innovative Sustainability-Linked Loan
On-Farm Carbon and Emissions Management: Opportunities and Challenges
Sustainability Strategy and Reporting for Small and Medium Sized Companies: A Discussion at the Conference of Montreal
BMO to Acquire Calgary-based Radicle Group Inc., a Leader in Environmental Services
Investment Opportunities for a Net-Zero Economy: A Conversation at the Milken Institute Global Conference
How Hope, Grit, and a Hospital Network Saved Maverix Private Capital Founder John Ruffolo
Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference
Exploring the Physical and Transition Risks Facing Food and Agriculture
Building an ESG Business Case in the Food Sector: The Food Institute
Forging Ahead in the Energy Transition: Darryl White to Global Reserve and Asset Managers
BMO and EDC Announce Collaboration to Introduce Sustainable Finance Solutions for Canadian Businesses
Retrofitting Canada's Building Sector: Efficiency Canada’s Corey Diamond in Conversation
The Role of Hydrogen in the Energy Transition: FuelCell Energy CEO Jason Few in Conversation
BMO proud to support first Government of Canada Green Bond transaction as joint-lead manager
Op Ed: Government Action Can Help Spur More Home Building To Address Canada’s Housing Shortage
Tackling Climate Change in Metals and Mining: ICMM CEO Rohitesh Dhawan in Conversation
BMO Launches Business Within Reach: BMO for Black Entrepreneurs and Commits $100 million in loans to Help Black-led Businesses Start up, Scale up, and Grow
The Post 2020 Biodiversity Framework – A Discussion with Basile Van Havre
BMO Announces Plan to Partner with Breakthrough Energy Catalyst to Accelerate Climate Innovation
BMO Financial Group Named North America's Most Sustainable Bank for Third Consecutive Year
Mitigating the Physical Impacts of Climate Change with Spatial Finance
Part 2: Talking Energy Transition, Climate Risk & More with Bloomberg’s Patricia Torres
Part 1: Talking Energy Transition, Climate Risk & More with Bloomberg’s Patricia Torres
BMO Helps Boralex Go Beyond Renewable Energy, with the Transition of its Credit Facility to a Sustainability-Linked Loan
A Global First: BMO Supports Bruce Power with World's First Nuclear Green Financing Framework
BMO ranked one of the most sustainable companies in the world according to Dow Jones Sustainability Indices
The Risk of Permafrost Thaw on People, Infrastructure & Our Future Climate
The Future of Remote Work and Diversity in the Asset Management Industry
North American Metals & Mining first: BMO helps Sandstorm Gold Royalties achieve ESG goals with Sustainability-Linked Loan
Education, Employment and Economic Empowerment: BMO Releases Wîcihitowin ᐑᒋᐦᐃᑐᐏᐣ- First Annual Indigenous Partnerships and Progress Report
BMO Announces $12 Billion Financing Commitment towards Affordable Housing in Canada
In support of Canada’s bid to host the headquarters of the International Sustainability Standards Board
BMO supports Canada's bid to host the headquarters of the International Sustainability Standards Board
BMO Named to Canada's Best 50 Corporate Citizens Ranking by Corporate Knights
Biggest Trends in Food and Ag, From ESG to Inflation to the Supply Chain
A North American First: BMO Helps Gibson Energy Fully Transition Credit Facility to a Sustainability-Linked Loan
Understanding Biodiversity Management: Best Practices and Innovation
Episode 31: Valuing Natural Capital – A Discussion with Pavan Sukhdev
Episode 29: What 20 Years of ESG Engagement Can Teach Us About the Future
BMO Financial Group 2020 Sustainability Report and Public Accountability Statement Now Available Online
Episode 28: Bloomberg: Enhancing ESG Disclosure through Data-Driven Solutions
BMO Ranked Among Most Sustainable Companies on Dow Jones Sustainability Index - North America
BMO investing in a sustainable future with $1M donation to the Institute for Sustainable Finance
BMO Financial Group Reaches Key Milestone in Matching 100 Per Cent of Electricity Usage with Renewables
BMO Financial Group Recognized as One of the World's Most Sustainably Managed Companies in New Wall Street Journal Ranking
Episode 23: TC Transcontinental – A Market Leader in Sustainable Packaging
BMO Financial Group to Source 100 Per Cent of Electricity Usage From Renewables
Episode 07: World Bank: Mobilizing Capital Markets for Sustainable Finance
Episode 06: Responsible Investing – Industry Trends and Best Practices from Canada