Water is more essential to business than oil. Like most natural resources, it is running dangerously low. As reduced access to water threatens successful business models, pioneering companies are taking action. In this new context, management accountants have the skills needed to help organisations create sustainable business models.

Efficiencies, risk management, analytics and forecasting are vital as companies review their environmental impact, and the business ramifications of diminishing resources.

The World Bank says that global demand for water is doubling every 21 years, whilst the UN estimates that that by 2025 two-thirds of the world’s population could face water ‘stress’ situations. Constricted water resources could change the way we do business. Production methods, customer requirements, investor sensitivities and capacity levels will shift and, of course, prices will rise.

China, seen as the next economic superpower, embodies the issue most starkly with over half of its cities struggling to provide clean water.

Water must move up the agenda at global sustainability talks; it must receive the same level of attention as reducing the carbon footprint. The hard evidence tells us that just as governments must take a leading role in finding a solution, so must businesses.

Corporate leaders have a central role to play, as much for the continued survival of their business as for the wellbeing of the planet.

Rather than keeping their heads in the sand, organisations are starting to respond seriously to the risk, and to measure and reduce their water consumption. The recent report I authored for CIMA Apocalypse H20: Case studies on Puma and Rio Tinto, looks at two companies leading the way in water management and valuation.

Puma are the first major multinational to issue an environmental P&L account. The company’s total environmental impact was valued at €94.4 million – equivalent to 46% of its net profit. Interestingly, CEO and Chairman Jochen Zeitz serves as Chief Sustainability Officer at parent company PPR, showing how seriously they are taking the issue.

Dr. Richard Mattison, CEO of Trucost, an environmental consultancy that worked with Puma in completing the water valuation, said the company was unusual in that it looks at indirect costs, such as the impact on ecosystems and the difficulty of replenishing supplies, as well as the direct costs, such as extraction and processing, that companies commonly examine.

“These indirect impacts are generally not valued into the market price,” he told me. “Companies that understand their dependence on natural resources along the value chain are well placed to manage underlying risk from rising raw material costs and scarcity of supply issues.”

Rio Tinto has built a better understanding of the true value of water by working extensively with the University of Queensland in Australia. The mining giant’s strategy covers three key areas: improving water performance, accounting for the value of water, and engaging with specialists. This integrated approach aims to provide clear guidance to managers as the company strives for water sustainability.

“Companies, including Rio Tinto, cannot afford to regard water as an inexpensive commodity, rather it is a shared resource and we must collaborate to ensure society uses it to the greatest benefit,” observed CEO Tom Albanese when we discussed the topic.

For both of these organisations, as the report reveals, financial impact plays a critical role in water risk evaluation. It’s fundamental they understand the business risks posed by shortages, and management accountants are in pole position to both make the short term efficiencies required and create long-term value.

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Read the report online or download a PDF of: Apolcalypse H20: how companies are accounting for the true value of water