In today's ever-evolving landscape, businesses are increasingly aware of the significance of responsible resource management. Two resources hold critical importance: water and energy. These fundamentals are indispensable to the functioning of any organization, regardless of industry or sector.

The way companies use and consume water and energy has far-reaching implications—not only for their operations but also for the environment and society at large. They’re deeply intertwined within the regulatory landscape and are often caught in the crosshairs of multiple interests at play. The Colorado River is the perfect example, as seen in the recently announced seven-state agreement.  There’s also a universal reason why no one can afford to neglect the importance of both water and energy. These resources are central to life on the planet, they’re critical to business, and they underpin a functioning economy. In this article, we’ll explore what it means for companies to prioritize sustainable practices in these areas.

Why should companies care about water and energy use?

Scarcity of resources isn’t just bad for the planet. It’s bad for people and profit too. Overconsumption of water and energy poses an increasingly material risk to businesses and their supply chains, hindering economic growth and sustainable development.

• Investing in water access and sanitation brings an impressive return on investment—every dollar spent yields an average return of $6.80. On the other hand, the World Bank found that failing to improve water management policies could lead to significant regional GDP losses ranging from 2-10% by 2050. (World Resources Institute)
• In the United States, The cost of delivering sustainable water management measures is only 0.78% of GDP. These expenses pale in comparison to the potential damages the nation may face if water scarcity persists. Take California as an example, where water scarcity and drought contributed to devastating forest fires that resulted in a staggering $24 billion worth of damages in 2018 (and will negatively impact its drinking water quality for years to come). (World Resources Institute)
• Numerous studies highlight the fact that efficiency plays a crucial role in achieving climate goals. The International Energy Agency's Sustainable Development Scenario, for instance, attributes 44% of its carbon reductions in 2040 to energy efficiency. The American Council for an Energy-Efficient Economy (ACEEE) reveals that implementing efficiency measures could potentially halve US GHG emissions by 2050. Companies who prioritize efficiency also reap the benefits of significant cost savings—FedEx, for example, achieved substantial carbon emissions reductions (nearly 2 million tons in 2018) through more efficient aircraft and flight operations, resulting in savings of $394 million. (American Council for an Energy-Efficient Economy)

It’s time to take a closer look at how companies can evaluate the role they play from an ESG (Environmental, Social, and Governance) lens. Only then can leadership take meaningful action to mitigate those impacts. 

Water use and its impact 

Excessive water extraction has far-reaching environmental consequences. Depletion of natural water sources can disrupt ecosystems, endanger biodiversity, and compromise the overall balance of the water cycle. Leaving water use and pollution unchecked only exacerbates these issues. This has resulted in the water scarcity and reduced water quality we’re seeing in many regions of the world today. 

Improper water management negatively impacts companies as well. Already, the global water crisis is causing significant financial losses for multinational companies across key industries. According to the CDP Global Water Report 2020, companies disclosing through its water security questionnaire that year risked losing nearly $301 billion USD combined in business value if they failed to address water risks. On the flip side, the estimated total cost of addressing those risks totaled $55 billion USD—less than one fifth of the amount they would’ve suffered in damages.

From an investor standpoint, unhealthy water use practices increase operational costs due to excessive water usage, pose supply chain risks from water scarcity or disruptions, and damage reputation and stakeholder trust due to environmental impacts such as pollution and ecosystem degradation. The benefits of taking action now to address such risks far outweigh the costs of investing in those changes. 

Energy use and its impact 

Energy consumption—particularly from non-renewable sources—significantly contributes to environmental degradation. The burning of fossil fuels releases greenhouse gasses that lead to climate change and its associated impacts, including rising global temperatures, extreme weather events, and sea-level rise. Reducing energy consumption and transitioning to cleaner, renewable energy sources are crucial steps towards mitigating these adverse effects. Much like unsustainable water use, improper energy consumption negatively impacts companies by increasing operational costs, contributing to environmental degradation and creating reputational and regulatory compliance risks. 

A study conducted by Lawrence Livermore National Laboratory in 2018 revealed a staggering statistic: up to 68% of the energy generated in the United States is wasted. The U.S. Environmental Protection Agency (EPA) further reported that companies waste approximately 30% of the energy they consume. For businesses, this translates to overspending on energy by a significant margin just to maintain their current production levels. Such high levels of energy waste significantly impacts businesses, leading to increased operational costs, reduced profitability, and a higher carbon footprint, undermining both financial and environmental sustainability.

The good news is that there are significant upsides to being smart with resource management: 

• By using treated wastewater instead of groundwater, the San Luis Potosi power plant in Mexico cut costs by 33%, leading to US$18 million in savings over six years for the power utility. For the water utility, the additional revenue from selling treated wastewater helped cover operations and maintenance costs. (World Bank)
• The Brazil-based CAESB water and wastewater utility’s use of biosolids (nutrient-rich organic materials resulting from the treatment of domestic sewage in a wastewater treatment facility) for corn production led to higher-than-average grain yields and was 21% more efficient than mineral fertilizers. (World Bank)
• Since 1973, IBM has been actively implementing sustainability plans and was the first corporation to receive the prestigious ENERGY STAR® Excellence in Corporate Commitment Award. By prioritizing energy efficiency, IBM has achieved remarkable cost and carbon savings. Through efficient data center practices alone, IBM saves $11 million annually, with a quick payback period. Additionally, the adoption of energy-efficient building management systems across their facilities is projected to result in savings of $1.4 million. (American Council for an Energy-Efficient Economy)
• GE engages its employees through interactive "treasure hunts" that uncover energy and resource waste, leading to valuable efficiency recommendations. With over 300 hunts conducted across its businesses, GE has saved a remarkable $150 million. GE has extended this successful process to more than 6,000 customers and partner firms over the past decade—boosting employee engagement and incentivizing participation in energy efficiency activities. (Harvard Business Review)

These real-life examples further emphasize the significance of efficient resource use for businesses. Neglecting sustainable practices not only poses financial risks—it also undermines long-term growth and profitability. On the contrary, responsible resource management makes good business sense. Embracing actionable strategies and adopting a forward-thinking approach benefits the bottom line. It also ensures a positive impact on the environment and society as a whole. It's time for companies to harness the power of sustainable water and energy use practices for a brighter and more prosperous future.