Strategy and the Sustainable Enterprise

P D Jose
Managing Water Risks

Let's consider another risk, that of water. As you know, the withdrawal of water far exceeds its
replenishment. While populations are at risk, corporations fair no better. Conflicts mainly arise as
access to water is viewed as a human right and human uses have priority. However, as corporate uses
of water increase, it places communities in direct conflict with companies. The pressing question for
many investors and companies is not whether they face water risk but how severe the impacts will be
and how soon will they be felt.
Most corporates use a tool called as the water footprint analysis to analyse both direct and indirect
water usage. Here are some beautiful examples of water foot printing put up by the water footprint
network. I strongly urge you to go and explore this. For instance, the apple that you had for breakfast
this morning consumes about 125 litres of water or the beer that you will consume after this long class
consumes about 74 litres for a glass of 250 ml. In fact, the global water footprint of barley is even
higher, close to 1,400 litres per kg. Many of us consider biofuels to be very environment friendly, but
the global average water footprint of a litre of bioethanol is nearly 2,854 litres of water. The chocolate
that you consume takes up about 17,000 litres of water per kilogram and the coffee that you will have
at Starbucks consumes nearly 132 litres per cup. So, these are huge footprints. Every product from
coffee to computer chips consume large amounts of water, and water has turned out to be one of the
biggest risk factors for corporations today.
So, to get back to the corporate context, the key questions that we will ask are, will costs increase due
to rising stakeholder expectations, changes in regulatory policy, emissions taxing, will there be a need
for new capital expenditures or would there be escalation in raw materials or energy costs, could there
be supply chain disruptions, overall would the risk profile of the company change? On the other hand,
will revenues be impacted due to new business opportunities, new forms of income, will customer
demand for green product allow premium pricing or costs to be passed through to customers and so
on. These are good questions that one might want to ask. In fact, when you look at risks, the key
questions for analysis are how has the risk influenced the markets' overall structure, efficiency and
profitability; how has it influenced the behaviour of firms in the industry; what are the implications of
these changes for incumbents as well as new players in terms of new opportunities, threats or
constraints; what are the implications for performance if the current strategy is maintained; given the
changes, what alternative strategies are consistent with long-term goals and capabilities of the firm?
These are all questions that corporates need to address to deal with such changes. However, what is
required is not a knee-jerk reaction to these challenges. Corporations need to evolve a framework for
dealing with sustainability challenges and risks. We will look at one such framework in the next
session.

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