Managing water and climate risk with renewable energy
Dwindling supplies of fresh water pose a material business risk: one estimate shows that the lack of clean fresh water threatens some $425 billion of value across more than 500 companies.1 Companies with water-intensive operations are apt to be attuned to water risk. But all companies can be indirectly exposed to water risk through their purchases of electricity, for water is widely used to generate electricity from steam-powered turbines. By contrast, electricity from renewable sources is generally less water intensive than electricity from fossil fuels.2 A promising way for businesses to lessen their risk exposure while helping relieve local water stress, therefore, is to make greater use of renewable power, whether by sourcing a larger share of grid power from renewable sources or by installing their own renewable-generation capacity.
It’s also well known that switching to renewables can help reduce carbon emissions—something that companies are increasingly seeking to do, given the need to limit the buildup of physical climate risks by achieving net-zero emissions. These dual water and climate benefits of renewable power can be significant and should be considered in tandem. The idea that energy management affects water stewardship and climate stewardship is not new: the so-called energy-water-carbon nexus has long been a focus of academic research related to a wide variety of topics, such as seawater desalination. But it is increasingly relevant to multinational companies’ decisions about how to reduce their water footprints in water-scarce regions and lower their carbon emissions.4
Assessing the potential water and carbon savings from using more renewable energy requires a granular analysis of site-level factors, ideally guided by a company-level strategy. To ascertain how these factors play out at the industry level, we analyzed data from more than 1,500 companies on the water consumption and carbon emissions associated with their electricity purchases in 2019, and then looked closely at two industries: chemicals, and food-and-beverage processing.5 (We selected these two industries because both had large data samples with extensive location footprints.)
Two site-level factors stood out in our analysis for both industries. The first factor is the water and carbon intensity of electricity purchased from the power grid; this varies considerably among regions. The second factor is the degree of water stress in the locations where a business operates, which also differs from region to region. For the chemical companies in our data set, 40 percent of energy purchases take place in regions with medium-high or higher levels of water stress, compared with 25 percent for food-and-beverage-processing companies.6 In this article, we show how considering these factors together can help executives maximize the water and carbon benefits of switching to renewable energy where feasible.Read More…
