Managing Water & Climate Risk with Renewable Energy

Alyssa Bryan, Thomas Hundertmark, Kun Lueck, Jason Morrison, Wilson Roen, Giulia Siccardo, and Humayun Tai, represent views from the Electric Power & Natural Gas Practice and McKinsey Sustainability. Dwindling supplies of fresh water pose a material business risk: one estimate shows that the lack of clean fresh water threatens some $425 billion of value across more than 500 companies. Companies with water-intensive operations are apt to be attuned to water risk. But all companies can be indirectly exposed to water risk through their purchases of electricity, for water is widely used to generate electricity from steam-powered turbines. By contrast, electricity from renewable sources is generally less water intensive than electricity from fossil fuels. A promising way for businesses to lessen their risk exposure while helping relieve local water stress, therefore, is to make greater use of renewable power, whether by sourcing a larger share of grid power from renewable sources or by installing their own renewable-generation capacity. Making the switch to renewables: How to begin Business leaders in all industries face questions from investors, regulators, and other stakeholders about their companies’ impact on the climate and on local water basins and about the actions being taken to manage both types of impact. Increasing the use of renewable energy represents one potential action that companies might take as part of a balanced, comprehensive approach to improving both water efficiency and carbon efficiency, mitigating related risks, and supporting sustainable, inclusive growth for the communities where they operate. Here are five actions that executives can take to support such an approach:

• Evaluate the company’s energy purchases and the resulting water consumption and carbon emissions in the aggregate as well as at the level of individual sites and for both direct operations as well as purchased electricity. For water, in particular, location-specific assessments matter because levels of water stress differ from place to place.
• Set integrated targets rather than separate ones for lessening water consumption and carbon emissions. In doing so, management might benchmark the company’s activities against those of its peers.
• Think cross-functionally about how water and carbon programs can support each other. Companies can manage electricity sourcing for both water and carbon impact. But many business operations result in both water consumption and carbon emissions. Carbon-management efforts related to other areas, such as manufacturing processes, could be expanded to address water consumption, and vice versa.
• Collaborate with others in and beyond the direct value chain. When it comes to managing water and carbon impact by changing the types and sources of energy they use, companies that do business in a given locale may wish to explore joint sourcing of renewables and collaborative stewardship of water resources. Especially in areas with high levels of water stress, companies might consider coordinating their activities and consulting local stakeholders to devise water-management plans that don’t put undue strain on shared local resources.
• Engage local utilities and regional or municipal authorities to understand their plans for phasing out fossil fuels and for increasing renewable capacity, then seek ways of working together to hasten the transition. If businesses voice interest in or commit to purchasing more renewable energy, they can encourage utilities to make needed capital investments.
• Water and carbon priorities don’t need to be at odds. An integrated renewable-energy strategy can address these two sets of priorities at once, enhancing the company’s performance and improving its standing with stakeholders.

Mckinsey.com