Sustainable Insight: Water Scarcity – A dive into global ... - KPMG

Sustainable Insight: Water Scarcity – A dive into global reporting trends | 13Suppliers: the hiddenwater usersThe business risks of water scarcityextend well beyond companies’ ownoperations and deep into their supplychains. For most companies, far morewater is used in the supply chain than indirect operations. Indeed, according toa recent KPMG study, three quarters ofwater consumption by companies listedon Japan’s Nikkei 225 Index occurs inthe supply chain. 8It is clear, therefore, that changes inthe availability of water could pose asignificant threat to business operationsby disrupting the supply of key inputs aswell as increasing manufacturing costsand commodity prices. The impact ofthe recent drought in the US providesevidence of this; as the drought startedto take its toll, the price of corn andwheat rocketed by 25 percent in onemonth alone. 9It is not surprising then, that investorsare increasingly looking to understandthe financial risks posed by waterrelatedchallenges in the supply chain.Moreover, companies can increasinglyexpect to be held accountable bystakeholders (such as customers,NGOs and pressure groups) forthe amount of water used in theirproduction processes and embeddedin end products and services.Reporting on the water footprint ofsupply chains is an essential first stepto demonstrating improvement overtime. This will be particularly importantfor water intensive industries such asthe food and beverage sector whereagricultural water inputs account fora significant proportion of the finalproduct’s water footprint. For example,almost the entire water footprint forbeef (99 percent) comes from theproduction of animal feed. 10However, our data shows that veryfew companies have yet come to gripswith the challenge of measuring andreporting on water use in the supplychain. In fact, in our survey only threeof the world’s largest 250 companiesreported on the water footprint of anypart of their supply chain, and none hasreported on the water footprint of itsentire supply chain.This challenge is further compoundedby the shifting of production to countriesthat are particularly vulnerable to therisks posed by water scarcity andfloods, Asian countries in particular. Theflood in Thailand in 2011, for example,crippled the manufacturing capabilitiesof more than 400 suppliers of computercomponents and automotive parts,sending ripples down the supply chain. 11The complexity of multi-country andmulti-continent supply chains serves toincrease exposure to water-related risks.So while companies headquarteredin water-rich jurisdictions may be lessinclined to report on their water usage,those with international operationsshould be acutely aware of the potentialrisks that water scarcity poses to theirsupply chain and global operations.Ultimately, effective management ofwater risks requires companies to gaina clear understanding of the impact oftheir water footprint and risk exposureboth up and down the value chain.8Peak water: Risks embedded in Japanese supply chains © 2012 KPMG AZSA Sustainability Co., Ltd.9http://www.bbc.co.uk/news/world-1943189010Water Footprint Network www.waterfootprint.org Accessed 30 July 201211Peak water: Risks embedded in Japanese supply chains © 2012 KPMG AZSA Sustainability Co., Ltd.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.