4 may 2015
Monetizing blue risks
If correctly valued, water will be better managed.
By 2050, it is predicted that 70% of the world’s GDP will be produced in water-scarce regions while an increasing number of cities and industries will be facing economic challenges due to severe water events such as flooding. These and other risks related to water are a critical consideration for today’s decisionmakers. Existing water footprint indicators give us insight into the vulnerability and resilience of a specific activity to water challenges. Now, decision-makers are looking at an even more pragmatic and straightforward metric: dollars. Veolia has developed an approach called The True Cost of Water that combines traditional CAPEX and OPEX calculations with analysis of water risks and their financial implications.
The True Cost of Water takes into account:
- Direct water costs: capital & operational expenditures for water infrastructure
- Indirect water costs: existing costs that are usually not attributed to water, such as water-related legal costs
- Financial implications of water risks: unanticipated costs arising during the lifetime of a plant.
These elements are organized into four categories: operational, such as water shortages; financial, such as an increase in the cost of capital; regulatory, such as an obligation to meet environmental standards; and reputational, such as temporary loss of license to operate as a result of local pressure. Veolia’s True Cost of Water approach is able to focus on the financial implications of waterrelated risks. It helps the user anticipate, prioritize, and more effectively mitigate water-related risks that can negatively affect the bottom line by creating a risk-reward tradeoff analysis. By including this approach into business decisions, decision-makers can better understand the importance of investing in sustainable practices such as water reuse and wastewater resource recovery. Return on investment is no longer simply based on current costs but is instead corrected to the risk-based costs.
This approach provides companies with vital information to assist in the selection of appropriate water strategies to diminish their overall water risk.