By: Michel Riemersma and Hester Brink

Water scarcity is a risk for populations, companies and investors alike. If the existing climate change scenario becomes a reality, almost half the world’s population will be living in areas of high water stress by 2030. Water scarcity is likely to be an important factor threatening stability in fragile regions. Given the growing challenge of water scarcity, it is vital that companies and financial institutions become aware of their own influences on water related problems, throughout their supply chain.

An example of a situation where water stress played an important role in triggering a conflict, occurred in December 2017 in Nigeria. It was reported by Amnesty International that the Nigerian Air Force (NAF) killed at least 35 people in attacks on villages in Adamawa: “The air raids occurred as hundreds of herdsmen attacked eight villages in Adamawa state, to avenge the massacre of up to 51 members of their community the previous month.” The NAF used Alpha Jets (exported from the United States in 2015) to fire SNEB 68mm rockets (produced by Thales subsidiary TDA) at the villages. The NAF also used EC135 helicopters (acquired second hand from the Nigerian National Petroleum Corporation) in the attack.

The sophistication of the weapons Nigeria’s military used in dealing with the conflict triggers questions on arms trade to conflict countries, but it is even more important to reflect on the root causes of the conflict between nomadic herdsmen and farming communities in the north of Nigeria.

Chatham House reported in 2016 that the conflict is not only fuelled by religious tensions and criminal activities, but also by water shortages and environmental degradation: “many of the designated grazing reserves were viewed as lucrative investments by some politicians and had their usage changed, creating a shortage of land, water and other resources necessary for the grazing of livestock. Pastoralists were forced to search for water and pasture for their animals outside the designated reserves, pushing them into confrontation with settlers. Environmental degradation is playing a role in fuelling the crisis, with desertification and the shrinking of Lake Chad forcing many pastoralist communities to move even farther into areas outside regular migration routes”.

However, water scarcity is not limited to Nigeria. In a similar vein, the UN Security Council on 31^st of January 2018 identified water-related issues such as drought, desertification, land degradation and food insecurity as factors threatening stability in West Africa and the Sahel, emphasising the need for the adequate assessment and management of risks.

Water scarcity is a global risk. In some arid and semi-arid areas, it might cause the displacement of between 24 million and 700 million people. Poor communities are even more vulnerable because their adaptability is limited and because they are more dependent for their livelihood on climate sensitive provisions such as local water and food supplies.

Companies should be aware of the possible negative effects that their operations could have in a possible location. This includes competing for water with local communities that are not always able to adapt fast enough to a changing environment. Companies risk reputational damage and loss of their social license to operate if local communities protest their water use, as happened when Coca-Cola had to abandon expansion plans in India in 2014. Coca-Cola experienced another boycott by Indian traders in 2017. Furthermore, lack of water can force companies to stop operations temporarily: “Between 2013 and 2016 14 of India’s 20 largest thermal utility companies experienced one or more shutdowns because of water shortages. World Resources Institute calculates that shutdowns cost these companies over INR 91 billion ($1.4 billion) in potential revenue from the sale of power”.

Various initiatives, guidelines and standards have emerged in recent years, to help companies address water risks. There are several guidelines and water ‘footprinting’ methods as well as voluntary disclosure initiatives that can be used to calculate water use and water risk. It is vital for companies to understand water issues and to create a sound water strategy, before any damage is done. Investors should stimulate companies to do so, in line with Sustainable Development Goal 6: Ensure availability and sustainable management of water and sanitation for all.  The final report of the EU High-Level Expert Group on Sustainable Finance - Financing a Sustainable European Economy, also identifies water resource management and conservation as a key sustainability goal.

Meanwhile, the city of Cape Town in South Africa is a clear example that water scarcity can also pose an enormous threat to major cities. According to the city’s local government, taps will soon run dry in homes and businesses. By April 21, municipal water may only be available at 200 Points of Distribution across Cape Town, in the words of the Premier of the Western Cape Province, Helen Zille: “[…] the challenge exceeds anything a major City has had to face anywhere in the world since the Second World War or 9/11.”

For more information or to discuss research opportunities on this topic, please contact: Hester Brink h.brink@profundo.nl or Michel Riemersma m.riemersma@profundo.nl.