04/03/2014 05:44 pm ET Updated Jun 03, 2014

Ready or Not: Water Is Quickly Becoming an Economic Issue for Major U.S. Corporations

Often the first step to finding a solution is admitting you have a problem. According to the survey VOX Global released this week with the Pacific Institute, major U.S. companies seem to be doing just that--admitting that they have a problem with water.

Extreme and prolonged droughts in Texas and California offer a window into the not too distant future where greater competition for water in the public and private sectors will raise several business challenges and increase scrutiny on a company's license to operate.

Many companies outside the United States have begun to acknowledge that water poses real risks to their business. Yet, we have not seen many reports that indicate the degree to which U.S. based businesses are aware of or prepared for the looming water challenges.

To understand the perception of water risk among major U.S. businesses, we surveyed over 50 companies--the majority Fortune 500 and publically traded, representing virtually every industry sector. In addition to an online survey, we conducted in-depth interviews with senior officials who have direct responsibility for water issues at companies including: AT&T, Cummins, The Hershey Company, MillerCoors, and Union Pacific.

Most (80 percent) of the companies surveyed said they are currently facing water-related challenges and expect these challenges to worsen over the next five years. The study also found that nearly 60 percent of responding companies indicated that water is poised to negatively affect business growth and profitability within five years, while more than 80 percent said it will affect their decision on where to locate facilities.

Yet, despite an admission of the problem, the majority of companies surveyed do not appear to be planning to increase water risk management practices that is proportional to the increased risk they see coming.

Why the apparent gap between perceived risk and planned response?

There are several potential explanations. For starters, water remains relatively cheap as a stand-alone cost-particularly when compared to electricity. This masks the true cost of water and hinders a company's ability to weigh the financial investment needed to address the risks.

In addition, the survey found responsibility for managing water issues typically resides in many departments and levels within a company. This can create a "silo effect" that serves as a barrier to understanding the full impact water has on a business. This may stem from the common misperception that water is a local issue that requires localized strategies and attention from specific groups or individuals inside a company. Or, perhaps from the belief that water is a social or environmental issue that is seen by many inside these silos as peripheral to business success. Combined, these factors could explain what respondents identified as the most significant internal challenges to increased investment in water management:

• The company needs more time to raise awareness and achieve buy-in; and,
• Mitigating other business risks are a higher priority.

There is also a growing gap between investor expectations and company actions, particularly among U.S. companies. As the CDP (a non-profit that provides the only global system for companies and cities to measure, disclose, manage and share vital environmental information) states in the foreword of our survey: "The number of investors requesting corporate water data and expecting action through CDP has quadrupled in just three years. The economic effects of mismanaging water resources are becoming increasingly apparent, and we at CDP are concerned that U.S. companies may not be truly prepared in the face of worsening water challenges."

Despite the gap between perceived risk and action, the survey does indicate a subtle shift among U.S. corporations. Many companies surveyed are beginning to view water as more of a strategic resource that is critical to the core mission of their businesses.

Now that they have admitted to a problem, companies need to understand the many ways that water affects both their bottom-line and reputation and the multitude of communication and management strategies they may need to adequately address these business challenges.

Long term, companies that can fully understand the complexities of water and integrate it fully into their business strategies will be the winners in a world that is increasingly water-stressed.

What Companies Can Do

Below are some practical steps any company can take toward developing a strategic response to growing water-risks.

1. Build the business case for action internally. Companies have found that participating in reporting initiatives and trade associations, evaluating peer companies' water efforts and joining common organizations and initiatives can provide a key spark to drive awareness of water challenges and build momentum for action throughout a company.

2. Measure, assess and report. Once you've gained company-wide buy-in, the next step would be to measure your company's water footprint. Companies can report this information through reporting frameworks such as the Global Reporting Initiative and the CDP Water Questionnaire and include it in their sustainability reports.

3. Communicate with stakeholders. Once a company has identified its risks and impacts, publicly disclosing this information can open a dialogue with stakeholders, which can foster credibility and trust.

4. Don't go it alone. Companies can mitigate risk and identify opportunities by building strong relationships with key advocacy groups and other stakeholders who can offer expertise about water issues. Publicly engaging and working with local communities collaboratively also helps to reduce the risk of water becoming a "license to operate" issue in the future.