Water – The Not - So - New Kid on the Block
To coincide with the celebration of the 20th annual World Water Day on 22 March this year, we are covering the water issue for the first time in the Global Sustainability Perspective. World Water Day is a means of focusing attention on the importance of freshwater and the sustainable management of freshwater resources around the globe.
Water Security and Scarcity: The Next Big Issues for Real Estate
Water security has been slowly gaining traction as a concern for real estate, while standing in the shadow of the energy and carbon issues that have been more prominent themes over the past decade. The regular droughts and floods experienced in many areas of the world in recent years have pushed this issue up the agenda of corporations, public organisations and the broader public at large. The annual World Economic Forum made it a major topic for the first time in 2010.
According to the often cited report by the 2030 Water Resources Group3, water supply across the world is expected to be 40%4 below forecast demand by 2030. This provocative estimate has reinforced the call for global mobilisation to mitigate a threat that endangers the global food chain, industrial production and energy generation, and thus the entire economy and basic needs of large parts of the world’s population.
Water scarcity, although similar to the energy and carbon issue, has two distinguishing characteristics: it is tightly linked to geography and regional water basins and it establishes a strong interdependence between companies, communities and natural ecosystems. Dealing with the consequences from this requires close local, regional or international cooperation, and solutions are best found through partnering with stakeholders, and even competitors, where water stress situations or flooding are a high and business critical risk. This is also a major reason why the UN declared 2013 as the ‘International Year of Water Cooperation’.
Sector Exposure to Water Risks
While global in nature, certain sectors are more exposed to water risks than others. According to the CDP’s Water Programme manager Cate Lamb, most exposed are currently the Consumer Staples (Food & Beverage etc), Energy (Oil & Gas, Fuels etc.) and Utilities sectors. Exposure also varies from country to country. In the USA, for example, 50% of freshwater withdrawals are for the energy generation sector, against a typical average of some 20% for the industrial and energy/utility sectors combined for a given country5.
If such risks affect business, then clearly there will be a related impact on real estate – either through the commercial consequences on the business or the physical consequences on the built environment. Precipitation patterns are already affecting land, infrastructure and buildings, and water availability may limit development opportunities for home builders and commercial real estate developers. In addition, flooding can have physical impacts on buildings and their values, and there are also regulatory and planning risks.
As illustrated in a 2010 report by CERES and a coalition of investors, companies and public interest groups, existing or anticipated water shortages may lead regulators to restrict or prohibit housing development in certain regions. In California, state laws require water agencies to withhold approvals until it has been proven that sufficient water exists for at least 20 years to serve large new developments6. Elsewhere, city governments are encouraging homebuilders to adopt water-efficient practices, and voluntary green building certification systems typically require minimum water performance standards for efficient water fixtures and also promote innovative wastewater management.
The business case for water efficiency related investments is often less strong than that for energy efficiency measures, due to the current relatively low cost of water. However, water companies need further capital for investment in infrastructure and therefore further price rises to fund these programmes are inevitable.
In October 2012, the CDP’s latest Water Disclosure report was published, detailing 185 publicly listed companies’ policies and practices regarding water management. A higher proportion of companies identified water as a substantive risk or opportunity in 2012 compared with the previous year:
- The two most important risks cited by responding companies were water stress or scarcity and flooding. Flooding can lead to physical damage or business interruption, which ‘Superstorm Sandy’ dramatically illustrated at the end of 2012 on the US East Coast.
- The CDP reporting framework also covers water-related opportunities, and the two most referred to were related to cost savings and additional sales from new products and services that cater to newly created needs and demands.
While CDP welcomed this increased awareness, it is clear that companies need to improve transparency on their water management strategies.
Security of countries’ and cities’ water supplies, already stretched, is likely to worsen with a growing population and increasing consumption in large urban agglomerations. Changes to rainfall patterns as a result of climate change are only adding to the water stress.
China, in its 12th Five-Year Plan (2010-2015), set a target of reducing by 30% water intensity per unit of value-added industrial output.
Some governments have set out the challenges and outlined aspirational plans in a variety of documents, such as the UK government in its ‘Water for Life’ white paper, which has drawn up plans for transition to a resilient and sustainable water sector.
The European Commission has also been developing policy measures. In 2000, it launched the ‘Water Framework Directive’ to protect and improve water quality and to promote sustainable water use across the European Union. The framework directive might one day engender a ‘Water Performance of Buildings Directive’, which could follow a similar path to the ‘Energy Performance of Buildings Directive’ that has entered national building regulations and moved energy efficiency to the forefront of owner and occupier concerns.
The real estate sector is recognising the role it can play in the mitigation of risks concerning water scarcity or, at the other extreme, flooding, and has started to contribute its share of improvements through increased water efficiency, wastewater management solutions in buildings, and location strategies. Playing a role in the increasingly interdependent environment of wider water risks and opportunities, our sector, in cooperation with the public sector, can help solve the water scarcity issue responsibly.
Managing water as a non-finite resource and, at the same time, planning accordingly for the time when it lashes down, the real estate sector can help develop business continuity and location strategies with private and public organisations. Increasingly, dramatic events provoked by extreme weather widen the circles of mitigation, and amplify the call for adaptation strategies that render vulnerable property and infrastructure assets more resilient. The key to success is close cooperation and long-term planning.
3 Charting Our Water Future, 2030 Water Resources Group, 2009
4 Aggregated global gap between existing accessible, reliable supply and 2030 water withdrawals, assuming no efficiency gains
5 The Water Resources Group Background, Impact and the Way Forward, 2030 Water Resources Group, 2012
6 Murky Waters? - Corporate Reporting on Water Risks, CERES, 2010