More than 22,500 large companies in the EU, UK, and the US will be impacted by new regulations for sustainability transparency. In the US, the SEC has recently proposed requirements for registered companies to disclose their climate risk to investors as part of their financial reporting, and to the same level of granularity.
These regulations are largely driven by the increasingly alarming and visible effects of anthropogenic climate change, such as rising global temperatures and historic droughts. Carbon reporting regulations are without question a step in the right direction but do not capture holistic impact, specifically water scarcity & usage in the food supply system.
As companies expand the measurement of their impact to include those beyond their owned operations, (Scope 1&2), to the impact of their entire supply chain, (Scope 3), it will be critical to elevate the reduction of water impact to the same level of importance as mitigating Greenhouse Gas emissions.
Reducing water impact is not just a sustainability initiative, it is a risk mitigation imperative. According to CDP, in 2020, companies reported the maximum financial impacts of water risks related to food, beverage, and agriculture at $19.59 billion, while the cost of addressing them would only be $1.1 billion.
What does this have to do with food companies?
Agriculture is both a contributor to and a victim of water scarcity in the face of climate change, higher temperatures deplete the amount of freshwater available and increase the evapotranspiration of crops resulting in the need for more irrigation.
Perhaps most shocking is the proportion of freshwater used to irrigate crops that are not intended for human consumption, namely cattle fodder such as corn, soy, and alfalfa. In the extremely water-stressed western United States, irrigation of cattle-feed crops is the single largest consumptive user, accounting for 23% of all water consumed nationally, 32% in the western US, and a whopping 55% in the Colorado River basin.
Scope 3 Water Impact Case Study
Source: HowGood’s Sustainability Intelligence Database, Latis. Mayo Clinic, Water: How much should you drink every day?
Food companies are powerful players in mitigating water scarcity, and they can make immediate and drastic improvements to water usage by adjusting their sourcing practices. In fact, 70-90% of a food ingredient’s environmental and social impact occurs at the farm level, meaning changing the crop, geography, and/or growing practices have the largest effect on the water impact of a food product.
This also means that the majority of a food company’s environmental impact is outside of their owned operations in their supply system, which will make Scope 3 impact reporting complex in the coming years as more legislators are putting reporting requirements in place.
Some are already stepping up to the plate. The UK retailer Sainsbury’s has set out to reduce its water consumption by 70%, and has already reduced by 50% compared to 2005/6 numbers. The remaining 30% will be offset by a water-saving partnership with local schools. In 2021, PepsiCo announced that it aims to be “net water positive” by 2030. Internal estimates forecast 11 billion liters of water saved annually as a result of this initiative.
Staying ahead of the regulatory curve
Scope 3 emissions and labor protections are the current focus of regulatory bodies, but water usage and other more holistic measures are sure to follow. In fact, in FY2024, EU’s Corporate Sustainability Due Diligence and Corporate Sustainability Reporting Directives will require companies to measure, address and report on any adverse environmental or social effects their materials might have – including “protection of water & life in water”.
Food brands and CPGs that move beyond a myopic focus on carbon and Scope 3 emissions toward holistic Scope 3 impact may in turn gain a seat at the regulatory table going forward. By putting voluntary standards in place for reduced water usage now, brands may be consulted as governing bodies attempt to aggregate and distill standards into binding regulations.
Focusing on the water impact of entire ingredient supply systems will be critical as global temperatures continue to rise and agricultural production is threatened by volatile growing conditions. Reducing water consumption not only shores up supply chain risk for food companies, it also has the potential to reduce other harmful impacts such as greenhouse gas emissions and soil degradation.
Water scarcity is one of the most visible consequences of climate change so food companies should expect stricter regulations sooner rather than later. Getting started on mapping the water impact of ingredient supply systems now will ensure compliance as well as annual sustainability reports that are more appealing to investors and consumers alike.
If you want to learn more about Scope 3 reporting and the water impact of your product’s ingredients visit our website.
You can also register for our upcoming Innovation Series Sustainability for Transparency in a Shifting Regulatory Landscape to learn more about how brands and retailers can reduce reputational risk, build consumer loyalty, bring greater profit margins, and shore up supply systems as regulations evolve.
More from the HowGood Blog:
- ‘Field to Farm Gate’: the Most Critical Piece of Scope 3 Emissions for Brands That Want to Reach Their ESG Goals
- Sourcing Ingredients with Smaller Carbon Footprints
- Beyond Carbon: The Value of Next-Gen Sustainability Criteria
- The Time for Water-Thirsty Products is Over
- Identifying and Eliminating Labor Risk for a More Regenerative Global Food Supply
- An 8-Level Framework to Fight Biodiversity Loss