Water is valuable but its price is low—and it’s fueling a crisis

Water’s value isn’t reflected in its price.
Water’s value isn’t reflected in its price.
Image: REUTERS/Robert Galbraith
We may earn a commission from links on this page.

One of the most-influential players at water’s intersection with business and investment is neither a business nor an investor, it’s an NGO.

The World Wildlife Fund, an organization devoted to preserving the biodiversity of rivers and wetlands, boasts a team of 500 people in 60 countries that spends much of its time studying business’s impact on water, and vice-versa. It runs one of the world’s most-used corporate water-risk filters and produces detailed reports on the role of corporations in water-quality and –quantity issues.

The point man for those efforts is Stuart Orr, a Geneva-based Brit who in a previous life schlepped around rice fields in west Africa and Asia working on water-related issues. Today he’s the manager of WWF’s freshwater team, where he cajoles corporate leaders and investors to become more-active water managers.

Orr says we’re living in a constant state of crisis when it comes to water. Droughts and floods, shrinking aquifers and polluted rivers—all are taking a toll. While climate change is a big contributor, he argues the world’s water woes are more about the failings of policymakers and the business world—particularly banks, investors, and insurers—which need to get more hands-on in addressing the risks and opportunities that crisis presents.

“We learned a long time ago that the only way you’re really going to save rivers and biodiversity is by engaging power,” Orr says. “And by power I mean business, government, and finance.

Orr recently talked with Quartz about WWF’s work, the difference between price and value in a water-stressed world, and the climate change-envy felt by the water world. Below is an edited transcript of that conversation.

Quartz: WWF pays a lot of attention to the intersection of water with business. Why?

Stuart Orr: Ten years ago, we went all in on the private sector, and for a very simple reason. In every river basin we worked, private companies were there, but our teams didn’t know how to engage them, what the conversation should be. When we did start talking with them, we quickly realized that water posed an existential risk to many of their operations around the world. Our interests were aligned.

Every food and beverage company has a story of being shut down by a community concerned about water. Japanese floods wiped out the microchip industry and caused billion-dollar losses for Toyota. Mining operations get shut down in Peru; breweries in Mexico. Monsoon rains in India mean a 40% price hike on cotton, which hurts apparel makers.

These events must be raising awareness in boardrooms.

Not as much as you’d think. Even today, it remains kind of hidden at the upper levels. You can talk with headquarters in London or Washington about water risk and they’ll say ‘It’s not our problem.’ And then you talk with the people who run local assets and factories and they’ll say ‘Oh my God, it’s killing us.’

What’s the hang-up?

It’s very tricky and complex to manage. It’s a global problem, but the execution needs to be local. Different geographies have different dynamics. The economics of desalinated water vs. groundwater or surface water or storage water are all very different. No company ticks a box and says, ‘Ok, we’ve done water,’ like they do with other environmental assessments. It’s too complicated.

Which industries have the furthest to go?

I’m really quite shocked by the lack of urgency or innovation coming out of finance and insurance. While you have a few enlightened financial institutions, I still struggle to find a bank or insurer that asks even rudimentary questions about companies’ water risks or water use as part of its underwriting. That frustrates the living hell out of most of us, because governments will respond to the financial community.

But finance is about risk-management of all kinds. Why not water?

The underlying problem with water is that it’s underpriced relative to its value pretty much everywhere. There isn’t a single country in the world that balances supply and demand through price. Not one. And because it’s not priced to reflect its value, our financial system doesn’t pick it up.

As recently as last year, I was in London talking with an investor who said, ‘We’re not worried about water because the price is low.’ I said, ‘Boy, you really don’t understand this, do you? When your asset runs out of water, is that an issue?’ And he said, ‘Of course it’s an issue.’ Well, guess what? That’s about value. Price isn’t going to tell you that.

Why is water so underpriced?

It’s the ultimate resource in the sense that it’s a social good, a human right, an environmental need and an input to the economy. It’s spiritual and cultural. It’s vital to agriculture. And it’s inherently political. There isn’t a politician in the world who is going to tell farmers that they can’t have their water or raise the price dramatically. It would be political suicide.

A growing number of companies calculate risk-adjusted “internal prices” to help manage risks and prioritize investments. Is that effective?

Some companies might feel shadow pricing is a useful tool, but the costs and values of water really should be on the balance sheet so they can fully keep track of it and really incorporate it into their decision-making.

So part of the problem with water is corporate accounting?

Yeah, in many ways it is an accounting problem. Companies don’t put any of those costs or risks down on the balance sheet as water costs. At the end of the day, you have capex costs, but they’re not traced back to water. People attribute a lot of things to climate change, but if you’re talking about consequences like flooding and drought, that’s water.

We need to be honest about what we’re discussing and make the full value of water explicit to companies in ways that allow them to make better decisions and choices. That means putting the value on the balance sheet. As long as they’re only looking at price, they’re not going to have a full understanding of what they need to achieve.

Given the attention climate change gets, why isn’t water more prominent on corporate radars?

If you talk about how climate change impacts people and industry, it’s fundamentally about water—rains, flooding, droughts, rising sea levels—but many people don’t make the connection. A big problem is that the climate change movement has this elegant target of holding the increase in average global temperatures to 1.5°C to motivate people around the world. We don’t have an elegant target in water, because while water is a global problem, the solutions are local. We just have to get over the fact that we don’t have a 1.5. We need to show people in other ways that water matters.

Do you get support from the climate change community?

Not really. There’s a real tussle between the mitigation and adaptation worlds in climate that is unhealthy. Most people are completely obsessed with the mitigation side—planting trees and keeping carbon out of the atmosphere—and getting to 1.5, and that’s fine. Their job is to get carbon out of the atmosphere. But they do it in almost a blind fashion without acknowledging that most people and businesses feel climate primarily through water. That’s about adaptation.

The flip side for water is that we start to blame everything on climate change. That’s not true, either. The reason Cape Town ran out of water wasn’t just because it was dry for three years. It was because for 10 years the local government failed to manage water properly.

Some say if water were priced more in-line with its value, it would attract investment and help solve some of these water-related problems.

It’s not totally about a lack of money. The World Bank gave India $1 billion to clean up the Ganges River, and there’s been very little change. So it’s also a political issue, driven by petty politics and mismanagement by the government.

But a lot of investment is required. The governance of water—the institutions and regulations and policies around it—is absolutely critical to business and finance, and nobody wants to pay for it. At some point the conversation has to shift to how we pay for these fundamental things.

For people in the private sector who want commercial market returns, you’re never going to have a price for water that reflects its value. These projects aren’t about pure payback. There’s a big role for social-impact investors who would get their money back but not get big returns. Trying to max out returns on water is a fool’s errand.

You’re painting a pretty glum picture. How do we fix things?

This is another reason why we engage the private sector and finance so aggressively. You as a corporation can do your bit and stop your leaks, but you’re still in watersheds that are poorly governed, and that needs to change.

The NGOs and water community have been pushing this for 20 years. We need the bloody investors and private sector to say to governments, ‘Hold on, this is an inherent existential threat here that affects all of us.’ Once investors and insurers get their heads around this and start pushing this it will really move. Right now they’re sitting silent, pretending it’s not their issue. That’s a huge mistake.

Where will we be 20 years from now?

Water will be a much more widely understood and appreciated issue in the business community. There will be more-sophisticated accounting for the risks. The investment will be exponentially higher than it is today. You will see an industry created around water that is huge, because it has to be that way.

Listen, I’m a water guy, so I’m biased. But it’s the single most important thing there is. People can’t survive without water, and neither can business.