OOSKAnews Voices is a series of guest “opinion columns” written by senior participants in different parts of the international water community. The columns provide a global platform for organizations and individuals to promulgate their views and messages. In this article, Ed Pinero states the business rationale for good water stewardship.
When was the last time you were consciously aware of how the ecosystem provides services, or the value of those services? Whether it is the conversion of carbon dioxide to oxygen, the hydrologic cycle, growing food, or recreation, the ecosystem provides services essential to our existence. However, we tend to take the ecosystem for granted, or at most, only become aware when something bad happens. This unfortunately leads to two basic types of outcomes. First, we operate in a reactive mode, and tend to become cognizant of ecosystem services only when they are degraded, or become altogether nonexistent. Second, we miss many opportunities to leverage these services to not only protect the environment, but also improve our lives. One natural resource that provides a multitude of services, including supporting life itself, is water.
Even when technologies and logistics exist for sustainable water management, it is often difficult to make the business case to implement such approaches. This is because the low cost of water results in poor return on investment (ROI) and long payback periods. As a result, companies find it difficult to justify implementing better water stewardship practices.
Businesses operate on financial parameters in order to survive. One way to make a more informed business case decision on water stewardship is to calculate a notional, composite value for water that includes not only direct costs, but also indirect costs as well as a monetized value reflecting the water-related risks. Direct costs include the known operational and capital expenditures. Indirect costs include other company expenses associated with water issues, such as permit fees. Most telling however is the calculated costs associated with water-related risks, such as operational, financial, regulatory, or reputational risks. These risks are not often included as cost factors when determining the business case for innovative water management options. However, such innovative approaches may be necessary to protect against these risks becoming realities. These factors can be monetized in order to determine a more accurate per gallon cost, and allow for a more informed ROI and payback assessment; thus making a stronger business case for innovative water stewardship. This is because the pay-back and ROI would be based not only on a low current price, but instead be corrected to a risk-based true value. Using a more accurate value of water would demonstrate that the payback periods are actually shorter and lead to a greater likelihood of an improvement being implemented.
Once an organization recognizes the true value of water, which is invariably greater, often substantially greater, than what they actually pay for it, they will use and manage water much more proactively and sustainably.
Standardizing a universal true value per unit of water is not practical, as a gallon of water can have different values in different situations. It is important to recognize what the value of water is to the organization so that it can take sustainable, resource stewardship actions, and is not intended to be an absolute value for external use. This would not preclude a company from needing to know what the value of water is to their stakeholders and local community; as that information helps with planning and decision making. The external importance and value can be converted to an internal cost by determining how stakeholder concerns and other externalities may affect the business.
Applying the valuation concept to water is necessary in order to encourage sustainable water stewardship. The intent is not to simply reduce water to dollars and cents- we recognize it has priceless value in the human context, and is an essential pillar of nature as a whole. But water is very undervalued throughout the world, even in areas where there is scarcity. True, the price of water varies globally, but in basically every case, that price is substantially below the true value of water.
To those who may feel that this internal monetizing exercise “cheapens” the importance of the resource, it is highly unlikely that the true value is less than the current price and cost. So essentially in all cases, a company will ultimately value the resource more, and institute more proactive and sustainable water management practices. They will also work towards lessening their impact and burden on the resource on a broader scale, such as the watershed. It is better not only for the company, who can be more prepared for future risks, but also for the society dependent on sharing the resource.