Water risk: A growing threat to your business, and an opportunity to get ahead

Himanshu Gupta • December 19th, 2022.

Water is a fundamental necessity — and yet risks related to water are large and growing as a result of increasing demands and shifting climates that alter where and when water is available and accessible.

 

However, today, water stress challenges can also be opportunities, and being a good water steward can become a competitive advantage. In ClimateAi’s recent webinar, Water Risk to Water Resilience: A breakdown of water risk and how leading food + ag companies are turning it into their competitive advantage, water risk and supply chain experts described what businesses are doing today to get ahead of growing water risk.

 

To watch the webinar, you can access a recording here, and learn more below.

 

So, What is Water Risk?

 

Water risk, water risk analysis, and water risk management are always context-dependent. The where, when, and how much matter substantially. There’s no fixed definition of what being a good water steward looks like, and there’s no fixed playbook for how to manage water risk that is applicable to every place and time.

 

There are three main types of water risks: physical risks (increasing demands, drought, flooding, pollution); regulatory and external party action risks (changes in federal and local laws, policies, upstream management practices); and reputational risks (stakeholder perceptions of a company’s water-related impacts).

 

The situation is quite complex and cuts across many different applications. Three case studies illustrate the diversity of water risks and the diversity of responses.

 

1. Top Berry Company Overcomes Major Groundwater Stress in CA

 

One of the world’s largest berry companies was encountering three main water-related challenges:

1. It was seeing insufficient groundwater at key times during its growing seasons. 
2. A great deal of land in the region was irreversibly sinking (as groundwater pumping for agriculture and drinking water depletes aquifers).
3. As of late, water quality has been significantly lower in key West Coast regions. 

 

Separately and together, these posed immediate and long-term risks, including but not limited to: significant crop loss and quality reduction; permanent groundwater capacity reduction; an increasing number of fields lying fallow; all underscored by the lack of data-backed insights into this groundwater shortage.

 

ClimateAi’s platform helped the company understand the extent of the groundwater stress in these regions in California in numbers, and translated these numbers into impacts on the business. With these insights, ClimateAi showed ways to prioritize and mitigate actions to prevent negative impacts.

 

The company leveraged ClimateAi’s water intelligence tool to:

• Quantify groundwater risks across a number of sites quickly, in a matter of days rather than months
• Use these insights to prioritize recharge aquifers in the most critical locations (which can be effective longer-term groundwater mitigation strategies) 
• Use tools like these as part of their climate and water vetting for growing site acquisition, as well as water recycle/reuse investments — which are CapEx-intensive decisions

 

ClimateAi’s platform not only enabled more granular water assessments, but also allowed the company to move from screening to action. With hard data, disparate internal teams can break down silos to get consensus and take action. Plus, because large agribusinesses work with many different farms and growers, both directly and indirectly, having all of this data in one place is key for a 360-degree view of the risks to the company. These farmers have a good understanding and pulse of what is happening on the ground — and underneath it. Being able to access water projections and trends helps them stay better informed and prepared for the future, and better equips the agribusiness at large. 

 

Ag-lender De-risks Global Portfolio Using Smart Water Indices

 

A leading ag-lender had noticed a consistent theme of water scarcity throughout its clients’ sites across the globe, which tied to significant yield decreases. Despite this consistent theme, with thousands of clients globally, the ag-lender was still seeing exponential nuances by region and by water resource type — resulting in different risk tiers across them.

 

This ag-lender was looking for a high level of granularity in order to break down the overall water risk by resource type (groundwater, surface water) at the precise resource level and location. It was also seeking to determine which risks were short-term vs. long-term. 

 

ClimateAi’s platform was able to provide the company with just that. It provided visibility into the water resources at each client’s locations, showing which faced short-term, medium-term, or long-term risk. This essentially enabled a quickly scalable index for the lender to use across its portfolio. Then, based on the prioritization within the platform, the lender was able to begin taking or encouraging the necessary water management actions. 

 

Such a smart water index enables more efficient risk tracking and improved farmer support, as the ag-lender could create simple reporting with portfolio-level visibility, quantify risk by water resource type, quickly identify and prioritize clients with the highest risk, and develop mitigation strategies together with these at-risk clients.

 

Top US Food & Beverage Company Optimizes Production Using Seasonal Predictions

 

A leading food and beverage company with massive operations across the west coast of North America was looking to understand and optimize its overall production and supply using seasonal predictions. This represents a slightly different use case from the first two case studies in that the company was interested in a 1-6 month forecasting timeframe, as opposed to long-term trends and risk factors. 

 

The company was seeing increasingly variable precipitation and persistent drought conditions, which were creating major issues year-to-year. As the world heads into its potential fourth year of La Niña and likely another drought year in the Southwest US, companies like this one have been looking to take action to mitigate their risk in the immediate term. 

 

However, seasonal forecasts too often lack granular visibility on current water levels for the CA region, as an excess of data sources can be too much work to clean and synthesize. The metrics that do exist often prove misleading and not operationally useful; in fact, no forecasts exist to plan the water year effectively — a major gap.

 

ClimateAi filled these gaps by providing the company with critical water insights for chosen locations up to 6 months out for critical factors like precipitation, soil moisture, streamflow, humidity, and snowpack. With ClimateAi’s insights, the company was able to make better-informed decisions around key questions. For example, depending on water availability, it could scale up or down acres. It was able to identify at-risk locations and proactively secure alternative sources of water to meet demand. It could understand where it needed to urgently prioritize the implementation of water reduction/reuse. It was also able to make seasonal crop selections that would fare better based on expected conditions. With these various proactive mitigation strategies, they are able to reduce the impact of a lower allocation water year ahead of the season.

 

These precise, accurate insights provided visibility into the full spectrum of relevant variables, as well as specifically gave the likelihood of events. That way, the company could hedge around these probabilities. Still, ClimateAi’s platform allows teams to set alerts for certain thresholds, enabling these teams to make smart pre- and in-season decisions.

 

How You Too Can Turn Water Risk into Your Competitive Advantage

 

These three companies and other leading companies taking action on water risk use water management strategies that contain these four steps:

1. Aggregate and collect data on water consumption 
2. Understand the health of the water resources you rely on 
3. Quantify your location-specific water risks and opportunities
4. Mitigate your water risk and identify opportunities  (for example, long-term siting, aquifer recharge, and water recycle/reuse investments are some of the most common and powerful ways leaders do this.)

 

 

Whether it’s to tackle short-term or long-term water risk, there are strategies you can use and tools you can leverage available today. We see leading businesses that rely on agricultural products mitigating risk across crops, locations, and even sectors.

 

It’s been estimated that the cost of mitigating the water risks is less than one-fifth the cost of the value at risk. Taking action now will save money now, avoid emissions, and enable new profits for your business.

 

To learn more about how ClimateAi can help your business understand and tackle water risk, you can access a recording of ClimateAi’s webinar here. To dive deeper into water risk, read ClimateAi’s new e-book, “Navigating Water Risk: The 2023 Guide,” here.