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May 14, 2012
Water Use in Many Large Economies Is Unsustainable
    by Robert Kropp

China, India, and the US contain regions of extreme risk due to water scarcity, threatening global commodities prices and even increasing the possibility of social unrest.

A new study from the UK-based Maplecroft analyzes the risk to businesses of unsustainable water use in 168 countries. The study concludes, "Viability of water supplies throughout key regions of China, India, Pakistan, South Africa and the US are under threat from unsustainable domestic, agricultural and industrial demands."

"Businesses should undertake impact assessment and monitoring of water stress and water security and other areas of risk that conflate with such pressures including food security, conflict and energy availability," warned Maplecroft CEO Alyson Warhurst. "Supply chain risk, if not managed strategically, can lead to business discontinuity and unforeseen costs that undermine the profitability of projects."

Maplecroft's newly released Water Stress Index determines that the arid nations of the Middle East and North Africa—including Saudi Arabia and Egypt—are most at risk from water stress. The ten most water-stressed nations, according to Maplecroft, are all from the region.

However, countries such as South Africa and Pakistan contain regions that are at extreme risk as well. "Investors in these countries, especially those in the water intensive mining sector in South Africa, need to take steps to ensure the long-term viability of projects and supply partners," Maplecroft states.

The greatest impact from water scarcity on the global economy could come from some of the world's largest and fastest-growing economies. China's South-North Water Diversion Project seeks to reroute water to the more populous northern provinces of the country. The project has cost $22 billion already. Furthermore, because of the potential impacts on water availability from climate change, "doubts have been raised about the long term sustainability of the project, raising concerns for business with interests in the most water stressed areas."

In India, where 90% of freshwater extraction in used for agriculture, "continued unsustainable use of groundwater supplies has the potential to reduce crop harvests with dire implications for global food prices."

"The socio-economic impacts of water shortages, especially in India and China, have the potential to create unrest and affect stability, as populations and business compete for dwindling supplies," according to the study.

Even in the US, which is considered to be at medium risk, many states—including Arizona, California, Kansas, Nebraska, New Mexico, and Texas—received more severe classifications. The Ogallala Aquifer, which accounts for 30% of irrigation water in the US, "is being depleted faster than it can be recharged," according to Maplecroft. "The resulting effects on US agricultural outputs could cause significant inflation on the global commodities markets."

Earlier this year, the Interfaith Center on Corporate Responsibility (ICCR) published a Statement of Principles on water. It recommends that investors engage with corporations to ensure that a human right to water policy is in place; that companies report on water use, both in their own operations and in those of their supply chains; and that they "return water to the watershed from which it was abstracted in environmentally safe and usable condition."

"Corporations must implement sustainable water stewardship policies that are both environmentally and socially sustainable and that respect the universal human right to water," ICCR stated.


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