For business, water scarcity is where climate change hits home

For business, water scarcity is where climate change hits home

One of your columnist’s favourite ways of passing a hot afternoon in Monterrey, three hours south of Mexico’s border with Texas, is with a cold bottle of locally brewed Bohemia beer alongside a plate of cabrito (roast kid). For a business writer, it is a justifiable use of the expense account. Beers like Bohemia helped make Monterrey the industrial hub that it is. The Cuauhtémoc brewery, now owned by Heineken, a global giant, was started in 1890 by members of the Garza and Sada families, who went on to become Mexico’s biggest industrialists. Lacking suppliers in the arid north, they made their own bottles, caps and packaging, giving rise to conglomerates that fuelled the country’s modernisation. Today Mexico is the largest exporter of beer in the world.

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Monterrey is still awash with beer. But it is also stricken by drought. This has left millions of residents reliant on leaky public pipes desperately short of water, even as the industries that employ them guzzle the stuff, thanks to higher-quality private infrastructure. The brewers say they consume less than 1% of the local water, most of which is used by farmers who have no incentive to conserve it. That has not stopped President Andrés Manuel López Obrador, never one to waste an opportunity to bash the rich, from blaming the industrialists. He has told the beer firms to up sticks and move south, where rivers still run in torrents.

The industry is keeping its head down, treating this as populist rhetoric rather than a genuine demand to transplant breweries lock, stock and barrel to the other end of the country. Yet the imbroglio is illustrative, too. It shows how water shortages, combined with reputational damage and regulatory overreach, could affect many hydro-dependent industries, from food production, mining and power generation to apparel and electronics. Colin Strong of the World Resources Institute (wri), an ngo, says that though the private sector is trying to use water more efficiently, scarcity will be exacerbated by climate change, population growth and the greater water use that comes with growing prosperity. He quotes a pithy refrain common in environmental circles. “If climate change is the shark, water is its teeth.”

Heat and drought are leaving teeth marks everywhere. In Chile, the world’s biggest copper producer, the driest decade on record has forced mining firms such as Anglo American and Antofagasta to reduce output this year. In recent days companies such as Toyota, a carmaker, and Foxconn, which makes iPhones for Apple, halted production in south-western China after a drought caused hydropower shortages. On August 16th the American government took unprecedented steps to reduce water consumption in states in the Lower Colorado River Basin to safeguard reservoirs crucial for generating electricity. Norway, known as the battery of Europe for its abundant hydropower, says that water shortages may force it to curb supplies to its neighbours’ grids. In Germany, the Rhine has fallen so low that it has affected the ferrying of cars and chemicals north, and coal and gas south. Across unusually rain-free Europe, grain crops have frazzled in the heat. So have cotton fields in thirsty Texas.

The problem is not a lack of water per se. Climate change may make some places drier and others wetter. It is the uneven distribution of freshwater—of which fast-growing places like India are woefully short—that provide the conditions for a crisis. This is made worse by waste, pollution and the near-universal underpricing of water. Some governments, notably China’s, have created pharaonic projects to transport water to where it is needed. Others, such as Mr López Obrador’s, peddle the quixotic idea of moving demand to where the water is. The best outcome in the long term, on paper at least, is the simplest: that less of the stuff is used, and more of what is used is treated better. It is something the private sector is just starting to grapple with.

Industries directly affected by water shortages have got a head start. Global mining firms are using desalination plants in Chile. Beer and soft-drinks companies, existentially reliant on clean water, have targets for improving efficiency (Heineken says it uses 2.5 litres of water to make a litre of beer in Mexico, about half the global industry average). In collaboration with the wri, Cargill, an agro-industrial behemoth, recently extended the monitoring of water use from its own operations to the farmers who supply its crops. Fashion retailers, whose suppliers are often heavy users of water and dyes in dry areas, are considering similar moves, to avoid angry flare-ups by local residents who worry about being second in line to the taps.

This calls for careful stewardship. When Cape Town was in danger of running out of water in 2017, ab InBev, one of the world’s largest brewers, helped municipal authorities reduce water loss from the network. Ingenuity also helps. In Singapore, NewBrew makes craft beer out of reclaimed sewage. Andre Fourie, head of sustainability at ab InBev, says that in the future many companies will have to treat and reuse water to overcome scarcity.

Last orders

The looming shortages still do not get the attention they deserve. As a heavily subsidised raw material, water is so cheap that many ceos overlook it. A report this year by Planet Tracker and cdp, two ngos, said that about a third of listed banks do not assess water risks in their portfolios. For shareholders, it mostly comes far behind carbon emissions as an environmental, social and governance (esg) concern. It is not a risk that can easily be squeezed into oversimplified esg ratings. It is so dependent on local conditions that it requires myriad approaches.

In the words of Will Sarni, a consultant, water is an enigma. “It’s a personal thing. It’s a social issue. It’s got a spiritual dimension.” He hopes new technologies that use solar power to capture moisture from the air could bring creative destruction to the supply of water. Schumpeter, Bohemia in hand, would drink to that.

Read more from Schumpeter, our columnist on global business:
Tencent is a success story bedevilled by the splinternet (Aug 13th)
The Spirit deal is a missed opportunity for creative destruction (Jul 28th)
Meet Keyence, consultant to the world’s factories (Jul 23rd)

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https://www.economist.com/business/2022/08/17/for-business-water-scarcity-is-where-climate-change-hits-home