New analysis informs decisions in response to increasing water
scarcity
The Water
Risk Monetizer, industry’s first publicly available financial
modeling tool that enables businesses to factor current and future water
risks into decision making, now provides users with insights into how
water scarcity impacts revenue. The tool’s new assessment helps
water-dependent businesses better understand the full value of water to
their operations and identify revenue at risk based on current and
projected water scarcity.
The Water Risk Monetizer, first introduced in November 2014, was
developed by Ecolab Inc., a global leader in water technologies and
services, and Trucost, a global leader in valuing natural capital.
Ecolab and Trucost are committed to increasing understanding of global
water risks and helping businesses make more informed decisions for
responsible water use. The Water Risk Monetizer is a secure site
available at no cost to businesses throughout the world, and only the
user has access to the information provided.
The tool is designed to help companies address the impact of water
scarcity on their ability to operate, generate profit and grow. The
premise for the tool in its expanded form is:
-
Water scarcity has the potential to increase the cost of water which
makes operations more expensive and reduces profit margins.
-
Water scarcity limits availability, making it more difficult to access
the water a business needs to operate which can decrease production
and result in loss of revenue.
“As water scarcity increases around the world, business leaders need
actionable information to help them understand and manage their current
and future water-related risks,” said Douglas M. Baker, Jr., Ecolab
chairman and chief executive officer. “The Water Risk Monetizer helps
businesses make informed decisions to enable growth in this new era of
water scarcity.”
Developing effective water management strategies can be hindered by two
major factors. First, water is often not priced to reflect its full
value. As a result, many businesses are not factoring potential cost
implications associated with water scarcity into business decisions.
Second, businesses rely on water and often take its availability for
granted and assume necessary water supplies will be available in the
future. The reality is that the world’s water supplies are limited.
Demand is increasing and quality is declining due to the need for more
food and energy, increased economic development and other factors. The
tool provides businesses potential financial implications related to
water scarcity risks and the likelihood that these implications will
occur.
The tool assesses the potential cost or impact of water risks in ways
similar to how other risks are considered in planning and capital
allocation by providing:
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Risk-adjusted water cost: monetary estimate of the full value of water
at a facility level, based on what water would cost if supply and
demand were accurately reflected.
-
Potential revenue at risk: estimated amount and likelihood of the
revenue that could potentially be lost at a facility due to the impact
of water scarcity on operations.
“The new revenue-at-risk indicator illuminates the threat that
businesses face from water scarcity,” said Richard Mattison, chief
executive of Trucost. “It helps companies raise awareness about the need
for investing in sustainable water management, as well as providing a
practical water risk assessment tool to factor water scarcity into
business decisions.”
HOW IT WORKS
The Water Risk Monetizer uses scientific models
developed by Trucost to quantify the potential impact of water scarcity
on a facility in monetary terms.
Risk-Adjusted Water Cost (introduced
November 2014)
To calculate a risk-adjusted water cost, the
water risk premium model correlates local water scarcity to
considerations that contribute to the full value of incoming water,
based on scarcity, for a specific facility, including:
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Current and projected water use
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Current and projected local water scarcity
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Economic variance and purchasing power
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Historical trends in country-level water tariffs
Using algorithms derived from published scientific studies on water
scarcity and in-stream water values, such as groundwater recharge, waste
assimilation, wildlife habitat and recreational activities, the tool
correlates a facility’s water use to these local water scarcity
considerations to calculate a “water risk premium.”
The water risk premium, when added to the local price a business pays
for water, quantifies the value a business should place on water based
on real and future water scarcity risks (current, three-, five- and
ten-year projections).
Potential Revenue at Risk (introduced
August 2015)
To calculate revenue at risk, this new assessment
estimates the value of the revenue that could potentially be lost at a
facility due to the impact of water scarcity on operations. The tool
uses a revenue-at-risk model to estimate the amount of water available
to the facility – its “share” of total water available to industry water
users in the basin based on the facility’s contribution to the local
economy.
Because water is a finite resource that is shared by many users in a
water basin, the amount of water that should be available to a facility
may be less than what a facility needs.
The amount available also could change over time, as water scarcity
increases or as a local economy grows (the tool forecasts revenue at
risk over three, five and ten years). The revenue-at-risk model compares
the estimated amount of water a facility requires to generate revenue
(cubic meter per USD of revenue) to the facility’s share of water in the
basin if water were allocated among water users based on economic
activity (contribution to basin-level GDP). If more water is required
than the basin share of water allocated (as determined by the model),
then a proportion of the facility’s revenue is potentially at risk.
For more information and to try the tool, visit www.WaterRiskMonetizer.com.
About Ecolab
A trusted partner at more than one million
customer locations, Ecolab (ECL) is the global leader in water, hygiene
and energy technologies and services that protect people and vital
resources. With 2014 sales of $14 billion and 47,000 associates, Ecolab
delivers comprehensive solutions and on-site service to promote safe
food, maintain clean environments, optimize water and energy use and
improve operational efficiencies for customers in the food, healthcare,
energy, hospitality and industrial markets in more than 170 countries
around the world. For more Ecolab news and information, visit www.ecolab.com.
Follow us on Twitter @ecolab
or Facebook at facebook.com/ecolab.
About Trucost
Trucost has been helping companies, investors,
governments, academics and thought leaders to understand the economic
consequences of natural capital dependency for over 15 years. Our
world-leading data and insight enable our clients to identify natural
capital dependency across companies, products, supply chains and
investments; manage risk from volatile commodity prices and increasing
environmental costs; and ultimately build more sustainable business
models and brands. Key to our approach is that we not only quantify
natural capital dependency, we also put a price on it, helping our
clients understand environmental risk in business terms. For more
Trucost news and information, visit www.trucost.com.
(ECL-C)
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