Water Scarcity Means Higher ROI for Water Retrofits

Factors Contributing to Water Risk

The price isn’t always right, at least when it comes to water: for a variety of reasons, water is priced at a premium in relatively wet locations ($3.42 per m³ in Amsterdam) and cheaply in dry ones ($0.28 m³ in desert-like Mumbai). Mispricing has the potential to misguide the market, incentivizing businesses to locate water-intensive facilities in precisely the wrong places.

The Water Risk Monetizer, developed by Ecolab and Trucost, now helps calculate a risk premium using local factors that affect water supply—such as groundwater recharge, waste assimilation, wildlife habitat, and recreational activities—and weighed alongside a country’s purchasing power, population growth, and gross domestic product forecast. The groups hope that this information will help businesses avoid areas where current or projected water insecurity could threaten operations and bottom lines.

But the tool is also a useful resource to make the case for water projects or programs that—due to the undervaluation of water—register deceptively low rates of return. Water scarcity could result in surprise hikes in operating costs, stranded assets, and lower investor confidence, which, once accounted for, make water-efficiency retrofits much more cost effective.  For a beverage plant in Dallas, Texas, the tool calculates a risk-adjusted rate of $6.33 per m³—more than triple the going market rate of $1.85 per m³.

The tool addresses only how the price of incoming water purchased by a facility may be affected by scarcity, regulatory risk, and reputational risk—not the costs and risks associated with the condition of the water leaving the facility. However, the granularity down to the local water-basin level and automatic translation into monetized values distinguish this tool from other resources, such as the World Resource Institute’s Aqueduct Tool and the World Wildlife Fund’s Water Risk Filter, according to the creators.