An overview of the global water crisis

Concerns regarding access to water are not new. According to the World Health Organisation, 40% of the global population is affected by water scarcity and 700 million people are at risk of displacement as a result of drought by 2030 1.

The global water crisis is the result of a 'melting pot' of various factors: worldwide population and industrial growth; significant increases in water usage and demand; fresh water supply depletion as a result of economic development and climate change; degradation of water infrastructure as a result of long-term lack of maintenance and investment; and geographical and political factors.

The risks associated with the water crisis are varied and serious. 'Water wars' and related conflicts and large-scale migrations are a very real possibility, especially where countries are dependent on water sources that originate outside of their territory. Whilst it may not seem like an immediate pressing concern for some countries or industries, water shortages can limit production, disrupt supply chains, lead to conflict with other water users or commercial parties, and harm corporate reputations. Water infrastructure and scarcity issues underpin several of the 10 key global risks facing businesses as determined by the World Economic Forum's Global Risks Report 2023, and, in January 2023, Time Magazine placed water stress as a top 10 global risk alongside issues such as 'rogue Russia', the drive for increased state control in China, inflation and the energy crisis.

In 2020 the Department for Environment, Food and Rural Affairs (DEFRA) reported that water demand could outstrip supply in the UK by 2050. The UN estimates this could happen by 2030. A 2022 Water Action Agenda concept note noted that Sustainable Development Goal 6 2 of the UN's 2030 Agenda for Sustainable Development is "alarmingly off track".

The Water Action Agenda: A global response to the water crisis

The UN's Water Conference 2023 took place in March – the first UN Water Conference in almost 50 years. As well as raising awareness, a key outcome was the adoption of the Water Action Agenda, a culmination of over 700 commitments focused on the shift from a global water crisis to a water-secure world. Commitments were made by nations, the private sector and non-governmental organisations. They include, for example, Denmark's commitment to provide more than USD 400 million to enhance transboundary water management and development in Africa; the US's promises to invest up to USD 49 billion for climate-resilient water and sanitation infrastructure and services, and to allocate USD 700 million to support 22 countries under its Global Water Strategy; and the Asian Development Bank's commitments to invest USD 11 billion in the water sector in Asia and the Pacific, and USD 100 billion to water globally, by 2030.

Why water stress is already of concern for UK businesses

Also in March of this year, the House of Lords industry and regulators committee said that UK government and regulators are failing to police the privatised water sector adequately, at the expense of "sorely needed" infrastructure investments. On 25 April 2023 the Secretary of State for Environment, Food and Rural Affairs announced that the government will enshrine in law (through the Environment Act 2021) its Storm Overflows Discharge Reduction Plan. That will require water companies to deliver the largest water infrastructure programme in water company history, totalling an estimated £56 billion. DEFRA has also published its response to a consultation on a draft national policy statement for water resources infrastructure in England, alongside the final version of the national policy statement.

Even more recently, the Treasury has approved an £11.3m funding increase for Ofwat (the water services regulation authority) to triple its enforcement capacity to hold water companies to account. The Environment Agency's (EA) updated Thames Estuary 2100 Plan says defences must be raised upstream of the Thames Barrier by 2050, some 15 years earlier than the date set when the plan was launched. The acceleration is in response to both climate change (sea levels rising faster than expected) and deterioration of existing water infrastructure assets. The EA will require riverside strategies to be embedded into local planning frameworks by 2030, to ensure that new developments factor in future flood defence requirements. Plans for raising flood defences will also be developed by defence owners, local authorities and the EA by 2030. Similar measures may follow elsewhere across the country. The Thames Water crisis has also been hitting the national headlines. Thames Water is England's biggest water company and its finances have been affected, in significant part, by £millions in fines for sewage contamination and discharges, poor infrastructure and leakage, and the need for significant future maintenance and investment. Other water companies are likely to face similar concerns.

Finally (for now), the BBC reported on 26 June 2023 that, for the first time, the Environment Agency has cited water supply fears when submitting objections to housing development planning applications for some 500 homes. It's fair to assume that similar objections are now likely to follow on other schemes and in other locations.

One innovative response to the crisis is that farmers could soon be reimbursed for creating water storage ponds or water 'batteries' as part of an Ofwat's Innovation Fund drought-prevention project. Farmers will create stores of water, in soil 'sponges' as well as lakes and ponds. These can be 're-charged' through wet weather, then drawn on to form the basis of a smart water grid. The goal is to improve the resilience of the UK's water supply. Rural landowners might be interested in participating in this scheme.

Potential commercial implications of the water crisis

If not quickly and effectively addressed, the water crisis is likely to significantly impact global agricultural and industrial processes and production, contributing to food and energy shortages and further supply chain disruption. Poor water infrastructure is already leading to wasted water, higher bills and commercial disruption. Water issues are expected to rise up the sustainability agenda 3, meaning businesses may see growing emphasis on water action and responsibility in corporate reporting requirements, investor preferences and consumer choice.

By investing time and resources now to identify key contracts and areas of reliance on water, water infrastructure and/or suppliers who are themselves particularly vulnerable to water scarcity and security, businesses can take practical steps to address risks in their markets and supply chains.

Businesses can improve their approach to water management. A good start is to be aware of water consumption, reduce instances of over use and avoid clean water waste and leakages. Businesses undertaking agricultural or industrial processes or otherwise dealing with water contaminants can take steps to minimise or prevent contamination of natural resources. Businesses whose processes, manufacturing and/or supply chains are heavily dependent on water may wish to review contractual arrangements with a view to ensuring resilience.

As water stress become more prominent it will increasingly factor in a business's sustainability credentials and therefore consumer opinion. A recent survey carried out in the US 4found that 78% of consumers were more likely to buy a product if it had sustainability credentials; that 75% of millennials would pay more for a green product; and that 76% of people would even switch from a preferred brand for sustainability.

Water stress is also increasingly likely become a factor which businesses need to take into account in terms of future commercial contracts and the design and planning of development schemes.

Businesses' response to the water crisis: How we can help

Walker Morris is a multi-disciplinary commercial law firm, with specialist lawyers experienced in infrastructure and energy, environmental issues, commercial contracts, corporate- and climate- reporting, and all other aspects of the water stress/sustainability agenda. We can work with businesses at every step of their journey to create, implement and deliver an effective water strategy. In particular, we can:

  • Help businesses with climate and water monitoring and reporting, including measuring water- and other sustainability- related risks
  • Undertake audits and contract reviews and draft/update policies, procedures and contracts from a water sustainability perspective
  • Keep clients up-to-date on legal and regulatory developments associated with water stress and sustainability more generally
  • Help clients to secure 'green finance' or other responsible investments
  • Provide commercially-focused, cross-disciplinary advice and transactional assistance in relation to water sustainability
  • Provide advice and assistance in relation to the design and planning of development schemes
  • Provide advice and assistance for landowners in relation to the water batteries scheme and other innovative water stress solutions
  • Provide risk management and effective dispute resolution strategies if/when any water infrastructure or sustainability issues do arise.

Footnotes

1. Sources: World Health Organisation, United Nations (UN)

2. i.e. clean water and sanitation for all

3. See Walker Morris' earlier briefing: A practical approach to addressing ESG challenges

4. the GreenPrint Business of Sustainability Index

Originally Published by 19 July 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.