The WWF released a report titled The Value of Water: A Framework for Understanding Water Valuation, Risk and Stewardship, in August which states that most investment decisions are based on the price of water, yet the price of water only accounts for a portion of its full value.
According to the report, while the concepts of the price, the cost and the value of water are often used interchangeably, the reality is that there is a considerable difference in the three. The new framework by the WWF is geared at helping Business better understand water valuation.
Are Companies Missing the True Value of Water?
According to the WWF, many companies are failing to fully value water’s impact on shareholder value, and posits that the use of improved methods to account for water’s value could ameliorate corporate decision making, strengthen economic growth and assure healthier ecosystems.
The report offers a new framework for water valuation, linking the concepts of valuation, water risk and water stewardship.
Various case studies have been used to show that most companies are failing to maximise the value of water for their shareholders because they apply limited water management approaches. The report uses the new framework to illustrate how diverse water valuation metrics can be presented as an income statement and balance sheet; it also details, via case studies, how Business generally only focuses limited areas.
Most companies miss the true value of water in the following ways:
- They focus on the price of water, regulatory fines and brand protection, but these areas only represent a limited set of the value drivers linked to water;
- Very few companies consider how water affects staffing costs whereas water issues are increasing, which increases the need for legal expertise, engineers, and staff for reporting, communications and more. Poor water quality also affects staff health and could increase the number of sick days taken;
- Most companies perceive water only as a cost, but water is also a potential source of revenue. Stored water, water rights, and freshwater ecosystem services are assets which can quite easily be capitalised;
- The financial costs of water are only just starting to emerge, such as increased insurance costs due to drought;
- Traditional corporate water management generally focuses on costs and immediate risks, but water stewardship will encourage a broader perspective on valuation.
Only when Business fully understands the value of water and how it affects all aspects of operations will it be possible to maximise shareholder value and minimise risk.
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