Water: The Next Great Risk for Companies and Investors

Last Updated Apr 8, 2010 12:29 PM EDT

Water scarcity has become a concern among investorsInvestors are already pushing companies to disclose climate-related risks. So, why not include water consumption in the mix? After all, water shortages are expected to become more frequent -- and that would impact a variety of industries, especially those that use large quantities of the stuff.

The Carbon Disclosure Project, the same group that has partnered with financial institutions to convince 2,500 of the world's largest companies to disclose their greenhouse gas emissions, has expanded to water. The non-profit has asked more than 300 of the largest global companies to report on water use. Some 137 financial institutions with a combined $16 trillion in assets, including Allianz Group (AZSEY), HSBC (HBC) and ING have signed the request for information.

Concerns over water have already led regulators to take a closer look and sometimes deny permits to operations that use too much. Entergy's (ETR) Indian Point nuclear power plant was denied a permit from New York state regulators because of the large amount of cooling water used. Hydraulic fracturing, a method used to tap hard-to-reach shale gas, has come under increasing scrutiny because of concerns over both the chemicals used and the sheer amount of water expended in the process. Mountaintop coal mining could also be impacted now that the EPA has issued new water quality rules.

Water is a critical resource for industry and, of course, basic survival -- yet most of us know little about how it's used. It's one of the most undervalued and little understood resources in the world. Which is exactly what scientists discovered in a published report earlier this month by the American Chemical Society Journal of Environmental Science & Technology. There's little information, it turns out, on supply chain and indirect water use for the production of goods and services in the U.S. It just so happens that the Carbon Disclosure Project is looking for exactly that type of information.

The scientists determined that agriculture and power generation accounts for some 90 percent of direct water withdrawals. But surprisingly, a majority of water use -- about 60 percent of the water used in all 428 sectors studied -- is indirect. Which means it's used in processes like packaging or shipping, not in the actual watering of crops. Any guesses on how much water is used to make a $1 worth of dog or cat food? How about 200 gallons.

Water use will become an increasing large issue for tech companies as well. Data centers -- those massive facilities filled with thousands of servers -- are known for using large amounts of electricity. Companies like Google (GOOG), for example, has made it priority to build the most efficient data centers possible. But data centers also use a lot of water. A 15-megawatt data center can use up to 360,000 gallons of water a day, according to Data Center Knowledge. And with the growing use of cloud computing, it's only going to get worse. Cloud computing requires a lot of computing power, which means hundreds of thousands of servers in "mega-data centers." Heat generated from the servers is managed with cooling towers and on a large scale can sometimes exceed the capacity of local utilities, Data Center noted.

One major obstacle stands in the way of finding out how the world's largest corporations use water. That is, aside from convincing them to voluntarily report the information, in the first place. And that's the sheer complexity of it all. In short, it's not easy tracking water use. Even worse? Tracking the water used in the supply chain. Ford (F), which has already signed onto the Carbon Disclosure project, found it difficult to get information on water use from suppliers, according to the NYT.

Photo via Flickr user mjn9, CC 2.0