Presentation from the
2014 World Water Week in Stockholm
www.worldwaterweek.org
©The Author(s), all rights reserved
www.siwi.org
Business Value at Risk as a Strategy to
Address/Mitigate Water Risk in the Energy
Sector
Will Sarni, Deloitte Consulting LLP, USA
Stu Orr, WWF International, Switzerland
September 2014
The Business Questions
What should we be worried about?
 Will you have access to water in 20 years at any price?
 How much will this cost to secure? And what strategies do you have in place
to ensure this?
 What is my business value at risk from water risk? What is the potential for
stranded assets?
 What are the Capex water requirements to support growth? And who else
is competing for that water?
 Multinational growth projections….are they reasonable?
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Current water stress and hydro, thermal, nuclear power
plants
17% of global power plant design capacity is located in
areas of water stress concern
WRI Aqueduct, “The Food-Water-Energy Nexus,” January 18, 2012. http://www.environmentandsecurity.org/files/198401_198500/198444/charles-iceland-aqueduct-and-the-nexus_coca-cola-symposium.pdf 3
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Long term change in water stress by 2025 and hydro,
thermal, nuclear power plants
29% of current global power plant design capacity would
see water stress grow 2 to 8 times worse by 2025
WRI Aqueduct, “The Food-Water-Energy Nexus,” January 18, 2012. http://www.environmentandsecurity.org/files/198401_198500/198444/charles-iceland-aqueduct-and-the-nexus_coca-cola-symposium.pdf 4
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Water scarcity risk is a current business risk
2013 CDP Water Program Global
500 Report
• 47% response rate 25/57
• Lowest response rate yet has the
highest percentage of respondents
reporting exposure to risks at 82%
• Less than 50% of respondents have
targets/goals
• 54% of reported risks are to direct
operations and characterized as
regulatory
• Increase in reported reputational
risks since 2012
530 institutional investors
$57 trillion in assets
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Water Scarcity and
Business Risks
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Water risks – physical, regulatory and reputational
Supply Chain
Physical
Risk
(Non-availability
or scarcity; Poor
quality)
• Disruptions in
supply
• Increased costs
Operations
• Disruptions in
operations
• Increased capital
expenditures
Product Use
Financial Impact
• Limited sales
• Lost revenue from
disruption of
water supply
• Higher costs
Regulatory • Constrained
supply
Risk
(Access to water
licenses; Use
restrictions)
Reputational
Risk
(Competition with
household use;
Overuse or
pollution claims)
• Disruptions to
licenses to operate
• Damaged brand
• Constrained
supply
• Disruptions in
supply
• Disruption in
operations
• Loss of license to
operate
• Increased capital
expenditures
• Limited sales
• Product recalls
• Damaged brand
• Increased capital
expenditures
• Loss of “license to
operate” and
“license to grow”
• Damaged brand
• Limited or loss of
sales
• Delayed or
suppressed
growth, impact
share price
• Potential higher
cost of capital for
businesses that
rely heavily on
water
• Investor
confidence and
future demands
Water risk ultimately translates to financial risk for companies; failing to assess and manage this
risk in a comprehensive manner could jeopardize financial results and business continuity
Source: “Watching Water,” JP Morgan Chase Global Equity Research, April 2008.
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Water risk and value at risk dimensions
IMPACT ON BUSINESS CONTINUITY
DYING AND STRANDED ASSETS?
REPUTATIONAL
RISK
REGULATORY
RISK
BUSINESS DISRUPTION
AND INCREASED COSTS?
PHYSICAL
RISK
COMPLEXITY OF THE RISK TO QUANTIFY
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Physical water risks and “value at risk”
Plotting the water risk exposure score against potential value at risk identifies logical
breakpoints for risk mitigation activities – this does not indicate priority, but differentiates
between the requirements.
Categorization of Potential Risk Mitigation Activity
4.00
Water Risk Exposure Score
3.50
3.00
2.50
2.00
1.50
Category C:
12% of F20
production
1.00
Category B:
14% of F20
production
Category A:
54% of F20
production
0.50
Category D
Category C
Category B
Category A
0.00
0
10
20
30
40
50
Value at Risk (US Million Dollars)
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60
70
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80
Perception change by leveraging social media
MAP THE
AUDIENCE
IDENTIFY
AMBASSADORS
TACKLE NEGATIVE
PERCEPTION
Size
Influencers
Positive
comments
generated by
advocates
Conversation
Advocates
Key platforms
Determine
appropriate ratios
and metrics for
ambassadors and
content to
optimize
perception shift
results
POSITIVE
COMMENTS
# in each group
determined by
audience size
and platform
density
1:3 comment
ratio
negative to
positive
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DEPLOY CONTENT
STRATEGY
ACTIVATE
AUDIENCE
Educate
%
Entertain
%
Assist/Support
%
Excite/Inspire
%
Leadership/
Trust
%
Optimized for
client, 50-75% of
content must be
created by
audience
Monthly
drumbeat
activation
Quarterly
splash
activation
Ongoing
injection of
energy and
new voices
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Roadmap - Approach
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Water stewardship strategy to address risks
Companies should:
• Incorporate water risk into ‘traditional’
corporate risk management processes
• Quantify the “real” value of water to the
business
• Understand the energy-water nexus and its
potential business implications, set targets
across the value chain
• Increase focus on engagement and
innovation
• Look for opportunities in the overlaps
• Make a public commitment to water
stewardship
• Practice “radical transparency” about water
and seek opportunities to collaborate – or
clear the (internal) path for collaboration
Customers often have similar goals – open collaboration for mutual benefit is a key trend
Getting Ahead of the “Ripple Effect” A Framework for a Water Stewardship Strategy. W. Sarni, Deloitte University Press. 2013
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Water stewardship and business growth strategy
INCREASING VALUE AND COLLECTIVE ACTION
Fueling Growth: You Can’t Always Buy What You Need. W. Sarni. Deloitte University Press. 2013.
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Mapping financial value at risk (physical scarcity)
Source: Financial value at risk calculations are based on assumptions around physical supply disruptions (quantity or quality) and are based on facility specific estimates of the
likelihood of an event occurring and the severity if an event were to occur
Gassert, F., M. Luck, M. Landis, P. Reig, and T. Shiao. 2013. “Aqueduct Global Maps 2.0.” Working Paper. Washington, DC: World Resources Institute. Available online
at http://wri.org/publication/aqueduct-metadata-global.
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Mapping water risk – WWF Water Risk Filter
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Mapping financial value at risk (physical scarcity)
Number of production units
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Conclusions?
Debate shifting – from footprint to impact to risk and now value at risk
Objective is to stir action and create incentives and reduce business risk
Failure to act will create missed market opportunities
Public sector, financial institutions and businesses need to better understand this
issue
Leadership required!
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